Economics at your fingertips  

Commitment versus discretion in a political economy model of fiscal and monetary policy interaction

David Miller

Journal of Monetary Economics, 2016, vol. 84, issue C, 17-29

Abstract: Does price commitment result in lower welfare? I pair an independent monetary authority controlling nominal bonds with a fiscal authority microfounded by the political economy model of Battaglini and Coate (2008). Without price commitment, time inconsistency is alleviated by interaction between the benevolent monetary authority and the politically distorted fiscal authority. With price commitment, nominal bonds will be used for wasteful spending by the politically distorted fiscal authority. Price commitment results in lower welfare because it eliminates monetary control over fiscal decisions.

Keywords: Price commitment; Monetary policy; Monetary fiscal policy interaction; Time inconsistency (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.jmoneco.2016.09.002

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2024-05-08
Handle: RePEc:eee:moneco:v:84:y:2016:i:c:p:17-29