Zero Inflation Targets: Central Bank Commitment and Fiscal Policy Outcomes

Peter J. Stemp () and William M. Scarth
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Peter J. Stemp: University of Melbourne
William M. Scarth: McMaster University, Canada

Computing in Economics and Finance 1996 from Society for Computational Economics

Abstract: This paper considers a central bank with a zero inflation target and a fiscal authority with a differing objective. Situations under which the fiscal authority is able to exploit the central bank's commitment to zero inflation are examined. An example using a calibrated model shows that, in practice, it may be irrelevant whether or not the fiscal authority is aware of the central bank's objective.

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