Is Delegating Half of Demand Management Sensible?
One objection to delegating monetary policy to an independent central bank is that it causes lack of coordination with fiscal policy. Nordhaus has recently shown, in a simple game-theoretic model, how this generates too-contractionary monetary policy and too-expansionary fiscal policy, with interest rates becoming excessively high. In this note we incorporate the time-consistency, inflation-bias problem into the analysis, since it is this that has motivated most proposals for granting independence. We show that when the inflation-suppressing benefits are modelled alongside the high-interests rate costs, delegation may still be, on balance, against society's interests.
Year of publication: |
1998
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Authors: | Rankin, Neil |
Published in: |
International Review of Applied Economics. - Taylor & Francis Journals, ISSN 0269-2171. - Vol. 12.1998, 3, p. 415-422
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Publisher: |
Taylor & Francis Journals |
Saved in:
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