Monetary-Fiscal Policy Interactions and Commitment Versus Discretion in a Monetary Union

We consider monetary-fiscal interactions when the monetary authority is more conservative than the fiscal. With both policies discretionary, (1) Nash equilibrium yields lower output and higher price than the ideal points of both authorities, (2) of the two leadership possibilities, fiscal leadership is generally better. With fiscal discretion, monetary commitment yields the same outcome as discretionary monetary leadership for all realizations of shocks. But fiscal commitment is not similarly negated by monetary discretion. Second-best outcomes require either joint commitment, or identical targets for both authorities - output socially optimal and price level appropriately conservative - or complete separation of tasks.

Interactions of Commitment and Discretion in Monetary and Fiscal Policies

/pdf/should-the-european-central-bank-and-the-federal-reserve-be-232hs5w4nu.pdf

Should the European Central Bank and the Federal Reserve Be Concerned About Fiscal Policy

We consider the interaction between the monetary policy of a common central bank in a monetary union, and the separate fiscal policies of the member countries. We construct a model of the Barro-Gordon type extended to many countries and countercyclical fiscal stabilization policies. Each country's fiscal policies inflict positive (output expansion) and negative (inflation) externalities on other countries, and the common monetary policy has its time-consistency problem. But we find that each kind of policy helps solve the other kind's problem. The first-best can be achieved despite the inevitability of some ex post monetary accommodation to fiscal profligacy, without the need for fiscal coordination, without the need for monetary commitment, without the need for a conservative central bank, and irrespective of whether the fiscal or the monetary authorities have the first move.

/pdf/symbiosis-of-monetary-and-fiscal-policies-in-a-monetary-2j00k4dym9.pdf

Symbiosis of Monetary and Fiscal Policies in a Monetary Union

We develop a model in which governments' financing needs exceed the socially optimal level because public resources are diverted to serve the narrow interests of the group in power From a social welfare perspective, this results in undue pressure on the central bank to extract seigniorage Monetary policy also suffers from an expansive bias, owing to the authorities' inability to precommit to price stability Such a conjecture about the fiscal-monetary policy mix appears quite relevant in Africa, with deep implications for the incentives of fiscally heterogeneous countries to form a currency union We calibrate the model to data for West Africa and use it to assess proposed ECOWAS monetary unions Fiscal heterogeneity indeed appears critical in shaping regional currency blocs that would be mutually beneficial for all their members In particular, Nigeria's membership in the configurations currently envisaged would not be in the interests of other ECOWAS countries unless it were accompanied by effective containment on Nigeria's financing needs

Monetary Union in West Africa: Who Might Gain, who Might Lose, and why?

Monetary union without fiscal coordination may discipline policymakers

Handle everyday research tasks with reliable, citation-backed results

Your personal Research Agent to handle research tasks with citation-backed results

Popular Tasks used by Researchers

How can I help with your research?

Meet SciSpace

Get more enhanced response by uploading the PDFs you want me to reference.

No relevant PDFs in your library

SciSpace is the AI research assistant for academics. Run systematic literature reviews on 280M+ papers, and write papers with cited sources. Trusted by 1M+ students, PhDs & researchers.

SciSpace | AI for Research

Analyze PDFs

Code & Manuscripts

Funding & Grants

Literature & Patents

Medical & Clinical Data

Systematic Review

Visualize & Present

Web & Data

Build a Google Scholar-like website for your research.

Build a website

Create charts and images for your research

Create a Chart

Write a paper for submission to a journal

Draft a manuscript

Patent Search

Design eye-catching scientific posters in minutes.

Scientific Poster Generation

Systematic Literature Review

One task is running at the moment. Your messages will be shown right after.

Drag and drop or click here to browse

Loved by <highlight>1 million+</highlight> researchers

Extract a list of specific topics and their sources from unstructured text

Topics

Compare and analyze relevant papers that matches with your search

Papers

Get insights from PDFs and bookmarked papers from your library

My library

Recent searches

Try searching for:

Catch AI-generated content in scholarly and non-scholarly content

{ai} Detector

Ai Writer

Get PDF Summaries, highlighted text explanations 

Chat with PDF

Effortlessly create in-text citations and bibliographies in APA and 2,500 other formats

Citation generator

Get explanations, summaries, and answers on academic papers

Ease up your research workflow with {scispace}'s cohort of exciting AI tools

Elevate your academic writing skills and convey your ideas the way you want

Paraphraser

Explore our range of reading and writing tools

Your file is being prepared and should be ready in a few minutes. If it's a large file, it might take a bit longer. You can close this window, and we'll email you the file when it's done.

You have reached a maximum limit of <strong>{limit}</strong> columns in the table. Remove at least <strong>1</strong> column to add or create another one.

L. Leiderman

Author Tools

Chat about Author

Papers

Monetary union without fiscal coordination may discipline policymakers