Government Leadership and Central Bank Design
Working Paper No. 02-W08
Andrew Hughes Hallett and Diana N. Weymark
ABSTRACT [article]
This article investigates the impact on economic performance of the timing of moves in
a policy game between the government and the central bank for a government
with both distributional and stabilization objectives. It is shown that both inflation
and income inequality are reduced without sacrificing output growth if the government
assumes a leadership role compared to a regime in which monetary and fiscal policy is
determined simultaneously. Further, it is shown that government leadership benefits both
the fiscal and monetary authorities. The implications of these results for a country
deciding whether to join a monetary union are also considered.
Keywords and Phrases: Central bank independence, monetary policy delegation, policy coordination, policy game, policy leadership
JEL Classification Numbers: E52, E61, F42