Monetary–fiscal Interactions With a Conservative Central Bank
Bibliographic Data
| ID | 10492845 |
|---|---|
| Authors | Luisa Lambertini (0000-0001-6425-4606, Boston College, corresponding author) |
| Year | 2006 |
| Volume | 53 |
| Issue | 1 |
| Pages | 90-128 |
| Publication date | 2006-01-09 |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | Scottish Journal of Political Economy (JOURNAL) |
| Journal identifiers | ISSN: 0036-9292 • E-ISSN: 1467-9485 |
| Publisher | Wiley (PUBLISHER • GB) |
| DOI | 10.1111/j.1467-9485.2006.00372.x |
| OpenAlex | W2042070137 |
| Language | EN |
| Citations received | 1 |
| References cited | 11 |
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
Discretion · Economics · Fiscal policy · Inflation (cosmology · Macroeconomics · Monetary economics · Monetary policy · Output gap · Fiscal Policies and Political Economy · Fiscal Policy and Economic Growth · Monetary Policy and Economic Impact
| Citations per year | 0.33 |
|---|---|
| Citation span | 2023 - 2023 (1) |
| Highly cited | No |