Delegation and Fiscal Policy in the Open Economy: More Bad News for Rogoff's Delegation Game

Paul Levine () and Joseph Pearlman

Open Economies Review, 2002, vol. 13, issue 2, 153-174

Abstract: This article studies the open-economy Rogoff delegation game, taking into account both intra-country and intercountry interactions between fiscal authorities and central banks. With representative bankers, the Nash equilibrium of fiscal and monetary authorities independently responding to supply-side shocks sees insufficient monetary adjustment and an imbalance towards fiscal stabilization if shocks are sufficiently symmetric; the opposite occurs if shocks are sufficiently asymmetric. Appointing conservative bankers shifts the fiscal–monetary balance away from monetary towards fiscal policy. Unilateral delegation benefits that country; but when all countries independently delegate, the outcome is only favorable if shocks are sufficiently asymmetric. Copyright Kluwer Academic Publishers 2002

Keywords: delegation game; fiscal policy; monetary policy; conservative bankers (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1023/A:1013973214733

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