Monetary and Fiscal Coordination: Who Imposes Discipline on Whom?

Francesco De Sinopoli, Leo Ferraris and Claudia Meroni

No 562, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: In an insightful paper entitled Some Unpleasant Monetarist Arithmetic, Sargent and Wallace (1981) have argued that, when monetary and fiscal policy are not coordinated, inflation can get out of control if the monetary authority does not impose discipline on the fiscal authority. This paper shows that discipline can be reciprocal if the policy interaction is repeated and the rationality of the authorities is fully taken into account through the equilibrium concept.

Keywords: Policy coordination; chicken game; forward induction (search for similar items in EconPapers)
JEL-codes: C72 E31 E52 E63 (search for similar items in EconPapers)
Pages: 18
Date: 2025-11
New Economics Papers: this item is included in nep-mon
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