Skip to content

New Research on Europe Seminar

Credibility of Monetary Policy with Fiscal Conditionality


February 21, 2020
11:00am - 12:30pm
Hoffmann Room, Adolphus Busch Hall
February 21, 2020
11:00am - 12:30pm
Hoffmann Room, Adolphus Busch Hall

Should independent central banks react if pressured by fiscal policymakers? The seminar will discuss an environment with strategic monetary-fiscal interactions where only the central bank has a limited degree of commitment to follow policies over time. The talk will contrast the implications of two monetary frameworks: one where the central bank follows a standard rule, aiming exclusively at price stability, against one, where monetary policy additionally leans against fiscal influence. The latter rule improves economic outcomes by providing appropriate incentives to the fiscal authority. More importantly, the additional fiscal conditionality enhances the credibility of the central bank to achieve price stability. In particular, this credibility gain is higher when public debt is high and nominal, and lower, when debt is real with long maturity.

Sponsors

Close