We reconsider Svensson’s inflation-targeting proposal in a model where the need to raise seigniorage revenues determines the socially optimal inflation rate and distortionary taxes cause the inflation bias. Interpreting the targets as contracts, we show that the interaction between fiscal and monetary policy complicates the structure of the optimal contract. Moreover, if the commitment technology is imperfect, “highish” targets generate lower inflation than targets which are too low to be credible. Then we turn to an interpretation of inflation targets as monetary policy delegation to a nondistortionary, target-conservative agent. In our model target-conservative bankers are public-expenditure conservative. Expenditure-conservatism may explain why central bank independence is orthogonal to output variability.

Natale, P., Tirelli, P. (1997). Fiscal Policy and Imperfectly Credible Targets: Should We Appoint Expenditure-Conservative Central Bankers? [Working paper].

Fiscal Policy and Imperfectly Credible Targets: Should We Appoint Expenditure-Conservative Central Bankers?

NATALE, PIERGIOVANNA;TIRELLI, PATRIZIO
1997

Abstract

We reconsider Svensson’s inflation-targeting proposal in a model where the need to raise seigniorage revenues determines the socially optimal inflation rate and distortionary taxes cause the inflation bias. Interpreting the targets as contracts, we show that the interaction between fiscal and monetary policy complicates the structure of the optimal contract. Moreover, if the commitment technology is imperfect, “highish” targets generate lower inflation than targets which are too low to be credible. Then we turn to an interpretation of inflation targets as monetary policy delegation to a nondistortionary, target-conservative agent. In our model target-conservative bankers are public-expenditure conservative. Expenditure-conservatism may explain why central bank independence is orthogonal to output variability.
Working paper
Fiscal Policy; Imperfectly Credible Targets; Expenditure-Conservative; Central Bankers
English
1997
Natale, P., Tirelli, P. (1997). Fiscal Policy and Imperfectly Credible Targets: Should We Appoint Expenditure-Conservative Central Bankers? [Working paper].
open
File in questo prodotto:
File Dimensione Formato  
Fiscal_Policy_and_Imperfectly_Credible_Targets06.pdf

accesso aperto

Dimensione 111.35 kB
Formato Adobe PDF
111.35 kB Adobe PDF Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/22933
Citazioni
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
Social impact