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Fiscal disciplining effect of central bank opacity: Stackelberg versus Nash equilibrium

  • Meixing Dai
  • Moïse Sidiropoulos

Several recent studies have shown that, when fiscal and monetary authorities play a Stackelberg game, central bank opacity has a fiscal disciplining effect in the sense that it induces the government to reduce taxes and public expenditures, leading hence to lower inflation and output distortions, and lower macroeconomic variability. We show in this paper that, in a Nash equilibrium, the government is still disciplined by central bank opacity. However, the disciplining effect on the level and variability of inflation and the output gap is dominated by the direct effect of opacity.

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Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2011-17.

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Date of creation: 2011
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Handle: RePEc:ulp:sbbeta:2011-17
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