Monetary and fiscal policy interactions with central bank transparency and public investment

Meixing Dai () and Moise Sidiropoulos

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we study how the interactions between central bank transparency and fiscal policy affect macroeconomic performance and volatility, in a framework where productivity-enhancing public investment could improve future growth potential. We analyze the effects of central bank’s opacity (lack of transparency) according to the marginal effect of public investment by considering the Stackelberg equilibrium where the government is the first mover and the central bank the follower. We show that the optimal choice of tax rate and public investment, when the public investment is highly productivity-enhancing, eliminates the effects of distortionary taxation and fully counterbalance both the direct and the fiscal-disciplining effects of opacity, on the level and variability of inflation and output gap. In the case where the public investment is not sufficiently productivity-enhancing, opacity could still have some disciplining effects as in the benchmark model, which ignores the effects of public investment.

Keywords: Distortionary taxes; output distortions; productivity-enhancing public investment; central bank transparency (opacity); fiscal disciplining effect. (search for similar items in EconPapers)
JEL-codes: E52 E58 E62 E63 G30 H21 (search for similar items in EconPapers)
Date: 2010-07-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/23704/1/MPRA_paper_23704.pdf original version (application/pdf)

Related works:
Journal Article: Monetary and fiscal policy interactions with central bank transparency and public investment (2011)
Working Paper: Monetary and fiscal policy interactions with central bank transparency and public investment (2011)
Working Paper: Monetary and fiscal policy interactions with central bank transparency and public investment (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:23704

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().