Inflation Targets and Debt Accumulation in a Monetary Union

Roel Beetsma and Lans Bovenberg

No 2324, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper explores the interaction between centralized monetary policy and decentralized fiscal policy in a monetary union. Discretionary monetary policy suffers from a failure to commit. Moreover, decentralized fiscal policymakers impose externalities on each other through the influence of their debt policies on the common monetary policy. These imperfections can be alleviated by adopting state-contingent inflation targets (to combat the monetary policy commitment problem) and shock-contingent debt targets (to internalize the externalities due to decentralized fiscal policy).

Keywords: Debt Targets; Decentralized Fiscal Policy; Discretionary Monetary Policy; Inflation Targets; Monetary Union (search for similar items in EconPapers)
JEL-codes: E52 E58 E61 E62 (search for similar items in EconPapers)
Date: 1999-12
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Citations: View citations in EconPapers (6)

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Working Paper: Inflation Targets and Debt Accumulation in a Monetary Union (1999)
Working Paper: Inflation Targets and Debt Accumulation in a Monetary Union (1999)
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