Central Bank Independence and Co-ordinating Monetary and Fiscal Policy |
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Authors: | Brian Henry James Nixon & Stephen Hall |
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Institution: | Centre for Economic Forecasting, London Business School,;Imperial College;and London Business School |
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Abstract: | 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. |
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