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Interactions between monetary and fiscal policy rules

Leith, C., and Wren-Lewis, S. (2000) Interactions between monetary and fiscal policy rules. Economic Journal, 110 (462). pp. 93-108. ISSN 0013-0133 (doi:10.1111/1468-0297.00523)

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Abstract

The Fiscal Stability Pact for EMU implies that constraints on fiscal policy facilitate inflation control. In this paper we identify two stable policy regimes. When monetary policy seeks to raise real interest rates in response to excess inflation, a self-stabilising fiscal policy is required to ensure model stability. A fiscal policy which does not, by itself, ensure fiscal solvency constrains monetary policy to be relatively ‘passive’. However, in simulations we conclude that the central bank does not need to seek, on this account, the degree of debt stabilisation that appears to be implied by the fiscal stability pact.

Item Type:Article
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Leith, Prof Campbell
Authors: Leith, C., and Wren-Lewis, S.
Subjects:H Social Sciences > HB Economic Theory
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Economic Journal
ISSN:0013-0133
ISSN (Online):1468-0297
Published Online:25 December 2001

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