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Statements

Subject Item
n2:RIV%2F49777513%3A23520%2F14%3A43921919%21RIV15-MSM-23520___
rdf:type
skos:Concept n18:Vysledek
rdfs:seeAlso
http://web.b.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=bad01d57-95e8-49ed-9603-ea8185b0fa6f%40sessionmgr115&vid=2&hid=125
dcterms:description
Well before the global financial crisis, the long-term trend in fiscal policy had raised concerns about risks for the outcomes of monetary policy. Are fears of an unpleasant monetarist arithmetic justified? To provide some insights, this paper examines strategic fiscal-monetary interactions in a novel game-theory framework with asynchronous timing of moves. It generalizes the standard commitment concept of Stackelberg leadership by making it dynamic. By letting players move with a certain fixed frequency, this framework allows policies to be committed or rigid for different periods of time. We find that the inferior non-Ricardian (active fiscal, passive monetary) regime can occur in equilibrium, and that this is more likely in a monetary union due to free-riding. The bad news is that, unlike under the static commitment of Sargent and Wallace (1981), this may happen even if monetary policy acts as leader for longer periods of time than fiscal policy. The good news is that under some circumstances an appropriate institutional design of monetary policy may not only help the central bank resist fiscal pressure and avoid the unpleasant monetarist arithmetic, but also discipline excessively spending governments. By acting as a credible threat of a costly policy tug-of-war, long-term monetary commitment (e.g. a legislated inflation target) may induce a reduction in the average size of the budget deficit and debt, and move the economy to a Ricardian (passive fiscal, active monetary) regime. More broadly, this paper demonstrates that our game-theoretic framework with dynamic leadership can help to uniquely select a Pareto-efficient outcome in situations with multiple equilibria where standard approaches do not provide any guidance. Well before the global financial crisis, the long-term trend in fiscal policy had raised concerns about risks for the outcomes of monetary policy. Are fears of an unpleasant monetarist arithmetic justified? To provide some insights, this paper examines strategic fiscal-monetary interactions in a novel game-theory framework with asynchronous timing of moves. It generalizes the standard commitment concept of Stackelberg leadership by making it dynamic. By letting players move with a certain fixed frequency, this framework allows policies to be committed or rigid for different periods of time. We find that the inferior non-Ricardian (active fiscal, passive monetary) regime can occur in equilibrium, and that this is more likely in a monetary union due to free-riding. The bad news is that, unlike under the static commitment of Sargent and Wallace (1981), this may happen even if monetary policy acts as leader for longer periods of time than fiscal policy. The good news is that under some circumstances an appropriate institutional design of monetary policy may not only help the central bank resist fiscal pressure and avoid the unpleasant monetarist arithmetic, but also discipline excessively spending governments. By acting as a credible threat of a costly policy tug-of-war, long-term monetary commitment (e.g. a legislated inflation target) may induce a reduction in the average size of the budget deficit and debt, and move the economy to a Ricardian (passive fiscal, active monetary) regime. More broadly, this paper demonstrates that our game-theoretic framework with dynamic leadership can help to uniquely select a Pareto-efficient outcome in situations with multiple equilibria where standard approaches do not provide any guidance.
dcterms:title
Monetary and Fiscal Interaction with Various Degrees of Commitment Monetary and Fiscal Interaction with Various Degrees of Commitment
skos:prefLabel
Monetary and Fiscal Interaction with Various Degrees of Commitment Monetary and Fiscal Interaction with Various Degrees of Commitment
skos:notation
RIV/49777513:23520/14:43921919!RIV15-MSM-23520___
n4:aktivita
n14:I
n4:aktivity
I
n4:cisloPeriodika
1
n4:dodaniDat
n10:2015
n4:domaciTvurceVysledku
n8:2396505
n4:druhVysledku
n16:J
n4:duvernostUdaju
n17:S
n4:entitaPredkladatele
n5:predkladatel
n4:idSjednocenehoVysledku
30346
n4:idVysledku
RIV/49777513:23520/14:43921919
n4:jazykVysledku
n11:eng
n4:klicovaSlova
game theory; commitment; monetary-fiscal interactions
n4:klicoveSlovo
n15:monetary-fiscal%20interactions n15:game%20theory n15:commitment
n4:kodStatuVydavatele
CZ - Česká republika
n4:kontrolniKodProRIV
[72901DAB2780]
n4:nazevZdroje
FINANCE A UVER-CZECH JOURNAL OF ECONOMICS AND FINANCE
n4:obor
n9:AH
n4:pocetDomacichTvurcuVysledku
1
n4:pocetTvurcuVysledku
3
n4:rokUplatneniVysledku
n10:2014
n4:svazekPeriodika
64
n4:tvurceVysledku
Hughes Hallet, Andrew Stehlík, Petr Libich, Jan
s:issn
0015-1920
s:numberOfPages
28
n3:organizacniJednotka
23520