Government Leadership and Central Bank Design

Andrew Hughes Hallett () and Diana N. Weymark ()

No 3395, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This article investigates the impact on economic performance of the timing of moves in a policy game between the government and the central bank for a government with both distributional and stabilization objectives. It is shown that both inflation and income inequality are reduced without sacrificing output growth if the government assumes a leadership role compared to a regime in which monetary and fiscal policy is determined simultaneously. Further, it is shown that government leadership benefits both the fiscal and monetary authorities. The implications of these results for a country deciding whether to join a monetary union are also considered.

Keywords: central bank independence; monetary policy delegation; policy coordination; policy game; policy leadership (search for similar items in EconPapers)
JEL-codes: E52 E61 F42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-mac, nep-mon and nep-pol
Date: 2002-05
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