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Interaction Between Monetary And Fiscal Authorities Under Incomplete Information

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  • HISASHI SAWAKI

Abstract

This paper analyzes the interaction between monetary and fiscal authorities under incomplete information. The inflation goal of the central bank is assumed to be unknown to the fiscal authority and the public. The central bank signals the goal by choosing the first‐period monetary policy before the fiscal authority joins the policy‐making game. If the central bank would like the fiscal authority and the public to believe that it is wet (dry), the central bank would distort the money supply upward (downward) in order to reveal its actual type.

Suggested Citation

  • Hisashi Sawaki, 2010. "Interaction Between Monetary And Fiscal Authorities Under Incomplete Information," The Japanese Economic Review, Japanese Economic Association, vol. 61(2), pages 202-217, June.
    • Handle: RePEc:bla:jecrev:v:61:y:2010:i:2:p:202-217
    DOI: 10.1111/j.1468-5876.2009.00483.x
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    References listed on IDEAS

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    6. Vickers, John, 1986. "Signalling in a Model of Monetary Policy with Incomplete Information," Oxford Economic Papers, Oxford University Press, vol. 38(3), pages 443-455, November.
    7. repec:bla:scandj:v:95:y:1993:i:3:p:327-39 is not listed on IDEAS
    8. Stein, Jeremy C, 1989. "Cheap Talk and the Fed: A Theory of Imprecise Policy Announcements," American Economic Review, American Economic Association, vol. 79(1), pages 32-42, March.
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