 Indépendance des Banques centrales, politiques monétaire et budgétaire: une approche stratégiqueFabrice Capoen,
Henri Sterdyniak () and
Pierre Villa
SciencePo Working papers Main from HAL Abstract: Central Bank independence, monetary and fiscal policies : a strategic approach Fabrice Capoen, Henri Sterdyniak, Pierre Villa Central Bank independence has recently received a great deal of attention, in both theoretical literature and the public debate. This independence is meant to prevent goverments from practizing over- expansionary economic policies, which, when integrated in private agents expectations, are unable to sustain activity and thus only result in increased inflation. Independence increases the credibility of the government commitment to maintain a low level of inflation. However the risks of independence have not yet been considered to a sufficient extent. While institutional considerations lead to dedicate respectively monetary policy to inflation control and fiscal policy to activity regulation, this separation can be dangerous at a macroeconomic level. Diverging orientations of monetary and fiscal policies may lead to situations featuring high interest rates, large public deficits and overvalued exchange rates, the costs of which, for the country as well as its partners, must be considered. The first part of the article studies the closed economy case. In a Keynesian model, in which fiscal and monetary policies are used in independent ways to manage the inflation/unemployement trade-off, the conflict beetwen them induces a sub-optimal equilibrium, where both interest rates and public deficit are to high. In the same way, in a Barro-Gordon model, an independent Central Bank does not insure private agents against an inflationary surprise due to fiscal expansion. Finally a dynamic model shows that the rise of interest rates increases the financial burden borne by the firms, reduces their profitability and investments, and consequently limits the development of the production capacity. A situation where fiscal policy controls the demand and where monetary policy is dedicated to controlling profitability of firms would be preferable. The second part of the article introduces a two-country model. The lack of internal coordination between monetary and budgetary policies worsens the lack of international coordination so as to lead, in an inflationary shock context, to an equilibrium with high interest rates and deep public deficits, whereas the opposite policy-mix would be better (low interest rate, restrictive fiscal policy). The point is that the monetary tool is relatively less efficient when a world wide inflationary shock occurs. Only, a concerted behavior of monetary and fiscal authorities can result in an efficient policy-mix. But, is it compatible with Central Bank independance? Keywords: Banques centrales; Politique monétaire; Politique budgétaire (search for similar items in EconPapers) Published in Revue de l'OFCE, 1994, 50, pp.65-102. ⟨10.3406/ofce.1994.1374⟩ Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:spmain:hal-03475872 Access Statistics for this paper More papers in SciencePo Working papers Main from HAL |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.