Degree of Policy Precommitment in the UK: An Empirical Investigation of Monetary and Fiscal Policy Interactions

Tatiana Kirsanova and Stephanus le Roux

No 1108, Discussion Papers from University of Exeter, Department of Economics

Abstract: This paper investigates the conduct of monetary and fiscal policy in the UK in the period of the Bank of England independence and before the start of the quantitative easing. Using a simple DSGE New Keynesian model of non-cooperative monetary and fiscal policy interactions under the fiscal intra-period leadership we demonstrate that the past policy in the UK is better explained as following optimal policy under discretion than under commitment. We estimate policy objectives of both policy makers, and derive implied policy rules.

Keywords: Monetary and Fiscal Policy; Commitment; Discretion; Macroeconomic Stabilisation; Bayesian Estimation (search for similar items in EconPapers)
JEL-codes: E52 E61 E63 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:exe:wpaper:1108

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