Independent Monetary Policies and Social Equality
Working Paper No. 03-W07
Andrew Hughes Hallett and Diana N. Weymark
ABSTRACT [article]
The problem of monetary policy delegation is formulated as a two-stage game between the government and the central bank. In the first stage the government chooses the institutional design of the central bank. Monetary and fiscal policy are
implemented in the second stage. When fiscal policy has a social equality component, there is a
natural conflict between optimally configured monetary policies and equality. As a result,
governments interested in social redistribution, when faced with an independent central bank, will
have an incentive to limit their use of fiscal policy.
Keywords and Phrases: Monetary independence, central bank conservatism, income redistribution
JEL Classification Number: E52