The mainstream literature on monetary policy games under output persistence posits that: a) monetary regimes do not affect real variables in the steady state; b) optimal institutional design should entirely remove the inflation bias. We show that neither result necessarily holds if output persistence originates from debt dynamics and distortionary taxation. First, monetary delegation induces a strategic use of debt policy affecting steady-state distortions. Second, the reduction of such distortions may require monetary institutions that tolerate an inflation rate above the socially optimal level.

Tirelli, P. (2000). Revisiting Public Debt and Inflation: Fiscal Implications of an Independent Central Banker [Working paper del dipartimento].

Revisiting Public Debt and Inflation: Fiscal Implications of an Independent Central Banker

TIRELLI, PATRIZIO
2000

Abstract

The mainstream literature on monetary policy games under output persistence posits that: a) monetary regimes do not affect real variables in the steady state; b) optimal institutional design should entirely remove the inflation bias. We show that neither result necessarily holds if output persistence originates from debt dynamics and distortionary taxation. First, monetary delegation induces a strategic use of debt policy affecting steady-state distortions. Second, the reduction of such distortions may require monetary institutions that tolerate an inflation rate above the socially optimal level.
Working paper del dipartimento
Scientifica
Revisiting Public Debt; Inflation Fiscal; Implications; Independent Central Banker
English
Tirelli, P. (2000). Revisiting Public Debt and Inflation: Fiscal Implications of an Independent Central Banker [Working paper del dipartimento].
Tirelli, P
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10281/22961
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