Autore
Bilbiie, Florin Ovidiu

Titolo
Delegation and coordination in fiscal-monetary policy games.
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 2001 - Fascicolo: 13 - Pagina iniziale: 1 - Pagina finale: 50

We show how linear contracts and/or targets on inflation and output (or deficit) implement the optimal outcomes in fiscal-monetary policy games (with rational expectations of the private sector) with no need for any binding agreements. The centralised equilibrium is optimal (if policymaker shares the social welfare function) and dynamically consistent. We argue for decentralisation of policy and study a cooperative and commitment equilibrium defined as a second best. Commitment alone, albeit by both authorities, can only achieve a third best and discretionary Nash equilibrium is fourth best. Both the second best and the first best (if feasible) can be implemented by simple state-independent linear penalties and/or targets defined over the macro economic outcomes for both authorities, imposed by a same principal to avoid coordination problems at the delegation stage. This is shown both in a Nash game and in a Stackelberg game (with sequential moves). The implications for policy design in the European Monetary Union are straightforward: e.g., an appropriately designed inflation target for the ECB and an SGP-like system of linear excessive deficit penalties for each fiscal authority can implement the first or second best.



Testo completo: http://www.iue.it/PUB/ECO2001-13.pdf

Esportazione dati in Refworks (solo per utenti abilitati)