Monetary-Fiscal Interactions with a Conservative Central Bank

Luisa Lambertini

No 627, 2004 Meeting Papers from Society for Economic Dynamics

Abstract: We study macroeconomic stabilization when monetary and fiscal policies interact via their effects on output and inflation and the monetary authority is more conservative than the fiscal. We find that monetary-fiscal interactions result in poor macroeconomic stabilization. With both policies discretionary, the Nash equilibrium is suboptimal with higher output and lower inflation than optimal; the Nash equilibrium may be extreme with output higher and inflation lower than either authority want. Leadership equilibria are not second best. Monetary commitment is completely negated by fiscal discretion and yields the same outcome as discretionary monetary leadership for all realizations of shocks. But fiscal commitment is not similarly negated by monetary discretion. Optimal macroeconomic stabilization requires either commitment of both monetary and fiscal policies, or identical targets for both authorities -- output socially optimal and inflation appropriately conservative -- or complete separation of tasks

Keywords: Monetary policy; Fiscal Policy (search for similar items in EconPapers)
JEL-codes: E61 E63 (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www2.bc.edu/~lamberlu/papers/fiscgov.pdf main text (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www2.bc.edu:80 (No such host is known. )

Related works:
Journal Article: MONETARY–FISCAL INTERACTIONS WITH A CONSERVATIVE CENTRAL BANK (2006)
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:red:sed004:627

Access Statistics for this paper

More papers in 2004 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().