Debt, Deficits, and Deflation in an Economy with Central Bank Independence

Noritaka Kudoh

No 486, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: This paper studies a simple monetary growth model with debt and deficits to investigate the effects of various polices on output and inflation when the central bank is `tough.' In sharp contrast to the vast literature which implicitly or explicitly assumes fiscal dominance regime, in which the fiscal authority commits to the primary deficits, an increase in government expenditures or the government's indebtedness reduces output and inflation: fiscal stimulus aiming at raising output and inflation will do just the opposite. Fighting deflation in a world with central bank independence requires fiscal discipline

Keywords: monetary policy; fiscal policy; central bank independence (search for similar items in EconPapers)
JEL-codes: E5 E6 H6 (search for similar items in EconPapers)
Date: 2004-08-11
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Citations: View citations in EconPapers (2)

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