Interaction between central bank behaviour and fiscal policy: the US case
- 1 January 1988
- journal article
- Published by Taylor & Francis in Applied Economics
- Vol. 20 (1) , 97-111
- https://doi.org/10.1080/00036848800000039
Abstract
Federal Reserve behaviour is analysed using a model which incorporates an effect an effect of iscal pressure on monetary policy formulation. Incentive structures are hypothesized to be such that the central bank plans over a longer horizan than that relevant to the administration. With the cyclically adjusted deficit proxying for fiscal pressure from the administration, the response to the deficit then plays an interactive role in affecting the trade-off weights applied to the competing goals of monetary policy. The model performs well for the USA, and provides a pattern of policy that is stable over the full 1961ndash;83 period.Keywords
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