Commitment vs. Discretion in the UK: An Empirical Investigation of the Monetary and Fiscal Policy Regime

Tatiana Kirsanova and Stephanus le Roux

No 2013-52, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: This paper investigates the conduct of monetary and fiscal policy in the post-ERM period in the UK. Using a simple DSGE New Keynesian model of non-cooperative monetary and fiscal policy interactions under fiscal intra-period leadership, we demonstrate that the past policy in the UK is better explained by optimal policy under discretion than under commitment. We estimate policy objectives of both policy makers. We demonstrate that fiscal policy plays an important role in identifying the monetary policy regime.

Date: 2013
New Economics Papers: this item is included in nep-mac and nep-mon
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Journal Article: Commitment vs. Discretion in the UK: An Empirical Investigation of the Monetary and Fiscal Policy Regime (2013)
Working Paper: Commitment vs. discretion in the UK: An empirical investigation of the monetary and fiscal policy regime (2013)
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