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Policy Games and the Optimal Design of Central Banks

  • Andrew Hughes Hallett

    ()

    (Department of Economics, Vanderbilt University)

  • Diana N. Weymark

    ()

    (Department of Economics, Vanderbilt University)

This article studies the impact of alternative institutional configurations on economic performance when there is strategic interaction between the government and the central bank. The interaction between the fiscal and monetary authorities is modeled as a non-cooperative two-stage game. The institutions within which monetary and fiscal policies are implemented are represented by the degree of central bank independence, the degree of central bank conservatism, and the relative timing of fiscal and monetary policies. The four representative regimes considered capture the distinguishing features of monetary institutions in the United States, Switzerland, the European Union, and the United Kingdom.

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File URL: http://www.accessecon.com/pubs/VUECON/vu02-w20.pdf
File Function: First version, 2002
Download Restriction: no

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0220.

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Date of creation: Aug 2002
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Handle: RePEc:van:wpaper:0220
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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  1. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  2. David Currie & Paul Levine, 1985. "Macroeconomic Policy Design in an Interdependent World," NBER Chapters, in: International Economic Policy Coordination, pages 228-273 National Bureau of Economic Research, Inc.
  3. Demertzis, Maria & Hughes Hallett, Andrew, 1999. "An Independent Central Bank Faced With Elected Governments," CEPR Discussion Papers 2219, C.E.P.R. Discussion Papers.
  4. Fischer, Stanley, 1995. "Central-Bank Independence Revisited," American Economic Review, American Economic Association, vol. 85(2), pages 201-06, May.
  5. Barro, Robert J., 1981. "Output Effects of Government Purchases," Scholarly Articles 3451294, Harvard University Department of Economics.
  6. Hughes Hallett, Andrew & Weymark, Diana, 2002. "The Cost of Heterogeneity in a Monetary Union," CEPR Discussion Papers 3223, C.E.P.R. Discussion Papers.
  7. Galí, Jordi & Monacelli, Tommaso, 2002. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," CEPR Discussion Papers 3346, C.E.P.R. Discussion Papers.
  8. Alesina, Alberto & Gatti, Roberta, 1995. "Independent Central Banks: Low Inflation at No Cost?," American Economic Review, American Economic Association, vol. 85(2), pages 196-200, May.
  9. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
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