Degree of Policy Precommitment in the UK: An Empirical Investigation of Monetary and Fiscal Policy Interactions

Kirsanova, T. and Le Roux, S.D. (2011) Degree of Policy Precommitment in the UK: An Empirical Investigation of Monetary and Fiscal Policy Interactions. Working Paper. Social Science Research Network.

Abstract

This paper investigates the conduct of monetary and fiscal policy in the UK in the period of the Bank of England independence and before the start of the quantitative easing. Using a simple DSGE New Keynesian model of non-cooperative monetary and fiscal policy interactions under the fiscal intra-period leadership we demonstrate that the past policy in the UK is better explained as following optimal policy under discretion than under commitment. We estimate policy objectives of both policy makers, and derive implied policy rules.

• Item Type: Research Reports or Papers (Working Paper)
• Additional Information: Published online
• Keywords: Monetary and fiscal policy, commitment, discretion, macroeconomic stabilisation, Bayesian estimation
• Status: Published
• Glasgow Author(s) Enlighten ID: Kirsanova, Professor Tatiana
• Authors: Kirsanova, T., and Le Roux, S.D.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: SSRN eLibrary
• Publisher: Social Science Research Network