Myopic governments and conservative central banks: are they compatible?

Cornel Oros and Blandine Zimmer ()
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Blandine Zimmer: LaRGE Research Center, Université de Strasbourg

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

Abstract: Governments fear spending disturbances. To derive their optimal scal decisions, they use the robust control approach developed by Hansen and Sargent (2005, 2008). Results show that myopic governments, being more concerned by short-term spending imperatives than by the economy's output level, react to central bank conservatism by setting high taxes, detrimental to macroeconomic performances. Consequently, delegating monetary policy to not too a conservative central bank seems appropriate.

Keywords: budget uncertainty; robust control; monetary delegation. (search for similar items in EconPapers)
JEL-codes: E58 E60 E62 (search for similar items in EconPapers)
Date: 2019
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:lar:wpaper:2019-06

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