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Central Bank Independence and Co‐ordinating Monetary and Fiscal Policy
Author(s) -
Henry Brian,
Nixon James,
Hall Stephen
Publication year - 1999
Publication title -
economic outlook
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.1
H-Index - 8
eISSN - 1468-0319
pISSN - 0140-489X
DOI - 10.1111/1468-0319.00162
Subject(s) - economics , monetary policy , independence (probability theory) , monetary economics , inflation (cosmology) , central bank , inflation targeting , fiscal policy , exchange rate , extension (predicate logic) , macroeconomics , international economics , statistics , physics , mathematics , theoretical physics , computer science , programming language
In this article, Stephen Hall, Brian Henry and James Nixon review the arguments that granting a central bank independence to set monetary policy leads to low inflation. An important extension to the standard analysis considers the problem which may arise if monetary and fiscal policy are then not co‐ordinated. A strategic analysis is needed to assess this. Using such a framework in an empirical analysis, the authors find that an uncoordinated policy may lead to less growth than a co‐ordinated policy, and the main effects of this lack of co‐ordination are an overvalued exchange rate and a reduction in net trade.