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research article

Interactions of Commitment and Discretion in Monetary and Fiscal Policies

Dixit, Avinash
•
Lambertini, Luisa  
2003
American Economic Review

We consider monetary-fiscal interactions when the monetary authority is more conservative than the fiscal. With both policies discretionary, (1) Nash equilibrium yields lower output and higher price than the ideal points of both authorities, (2) of the two leadership possibilities, fiscal leadership is generally better. With fiscal discretion, monetary commitment yields the same outcome as discretionary monetary leadership for all realizations of shocks. But fiscal commitment is not similarly negated by monetary discretion. Second-best outcomes require either joint commitment, or identical targets for both authorities -output socially optimal and price level appropriately conservative- or complete separation of tasks.

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Type
research article
DOI
10.1257/000282803322655428
Author(s)
Dixit, Avinash
Lambertini, Luisa  
Date Issued

2003

Published in
American Economic Review
Volume

93

Issue

5

Start page

1522

End page

1542

Note

JEL E61, E63

URL

URL

http://www.jstor.org/stable/3132140
Editorial or Peer reviewed

REVIEWED

Written at

OTHER

EPFL units
SFI-LL  
Available on Infoscience
July 16, 2007
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/9503
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