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Degree of Policy Precommitment in the UK: An Empirical Investigation of Monetary and Fiscal Policy Interactions

Author

Listed:
  • Tatiana Kirsanova

    (Department of Economics, University of Exeter)

  • Stephanus le Roux

    (Department for Work and Pensions)

Abstract

This paper investigates the conduct of monetary and fiscal policy in the UK in the period of the Bank of England independence and before the start of the quantitative easing. Using a simple DSGE New Keynesian model of non-cooperative monetary and fiscal policy interactions under the fiscal intra-period leadership we demonstrate that the past policy in the UK is better explained as following optimal policy under discretion than under commitment. We estimate policy objectives of both policy makers, and derive implied policy rules.

Suggested Citation

  • Tatiana Kirsanova & Stephanus le Roux, 2011. "Degree of Policy Precommitment in the UK: An Empirical Investigation of Monetary and Fiscal Policy Interactions," Discussion Papers 1108, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:1108
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    File URL: https://exetereconomics.github.io/RePEc/dpapers/DP1108.pdf
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    Citations

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    Cited by:

    1. Laura Coroneo & Valentina Corradi & Paulo Santos Monteiro, 2018. "Testing for optimal monetary policy via moment inequalities," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(6), pages 780-796, September.
    2. Paez-Farrell, Juan, 2012. "Should central bankers discount the future? A note," Economics Letters, Elsevier, vol. 114(1), pages 20-22.

    More about this item

    Keywords

    Monetary and Fiscal Policy; Commitment; Discretion; Macroeconomic Stabilisation; Bayesian Estimation;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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