Time inconsistency problems and commitments of monetary and fiscal policies |
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Authors: | Prof Henrik Jensen |
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Institution: | (1) Present address: Institute of Economics, University of Aarhus, Universitetsparken, Building 350, DK-8000 Aarhus C, Denmark |
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Abstract: | Within a policy game, where monetary and fiscal authorities are subject to a time inconsistency problem vis-à-vis a monopoly-union, we provide additional support for commitments of either authority: monetary commitment moderates fiscal time inconsistency problems, and fiscal commitment moderates monetary time inconsistency problems. In contrast with the benefits of commitments, a regime of coordinated monetary and fiscal policy may turn out to be counterproductive.Comments and suggestions from Torben M. Andersen and one anonymous referee are gratefully acknowledged. Errors and omissions are, of course, my own responsibility. |
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