This paper extends the stabilization game between monetary and fiscal authorities to the case of multiplicative (model) uncertainty. In this context, the “symbiosis assumption”, i.e. fiscal and monetary policy share the same ideal targets, no longer guarantees the achievement of ideal output...

In a unionised economy with supply-side fiscal policy transparency has two contrasting effects on economic performance. Uncertainty on central bank's preferences induces unions to reduce wages but also produces a fully-anticipated expansionary fiscal policy which favours the setting of higher...