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Policy Games and the Optimal Design of Central Banks

Author

Listed:
  • Andrew Hughes Hallett

    (Department of Economics, Vanderbilt University)

  • Diana N. Weymark

    (Department of Economics, Vanderbilt University)

Abstract

This article studies the impact of alternative institutional configurations on economic performance when there is strategic interaction between the government and the central bank. The interaction between the fiscal and monetary authorities is modeled as a non-cooperative two-stage game. The institutions within which monetary and fiscal policies are implemented are represented by the degree of central bank independence, the degree of central bank conservatism, and the relative timing of fiscal and monetary policies. The four representative regimes considered capture the distinguishing features of monetary institutions in the United States, Switzerland, the European Union, and the United Kingdom.

Suggested Citation

  • Andrew Hughes Hallett & Diana N. Weymark, 2002. "Policy Games and the Optimal Design of Central Banks," Vanderbilt University Department of Economics Working Papers 0220, Vanderbilt University Department of Economics.
    • Handle: RePEc:van:wpaper:0220
    as

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    References listed on IDEAS

    as
    1. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    2. Demertzis, Maria & Hughes Hallett, Andrew & Viegi, Nicola, 2004. "An independent central bank faced with elected governments," European Journal of Political Economy, Elsevier, vol. 20(4), pages 907-922, November.
    3. Fischer, Stanley, 1995. "Central-Bank Independence Revisited," American Economic Review, American Economic Association, vol. 85(2), pages 201-206, May.
    4. Diana N. Weymark, 2001. "Inflation, Income Redistribution, and Optimal Central Bank Independence," Vanderbilt University Department of Economics Working Papers 0102, Vanderbilt University Department of Economics.
    5. Andrew Hughes Hallett & Diana N. Weymark, 2001. "The Cost of Heterogeneity in a Monetary Union," Vanderbilt University Department of Economics Working Papers 0128, Vanderbilt University Department of Economics.
    6. Alesina, Alberto & Gatti, Roberta, 1995. "Independent Central Banks: Low Inflation at No Cost?," American Economic Review, American Economic Association, vol. 85(2), pages 196-200, May.
    7. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    8. Currie, David & Holtham, Gerald & Hughes, Gordon, 1989. "The Theory and Practice of International Policy Coordination: Does Coordination Pay?," CEPR Discussion Papers 325, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Andrew Hughes Hallett & Diana N. Weymark, 2002. "Government Leadership and Central Bank Design," Vanderbilt University Department of Economics Working Papers 0208, Vanderbilt University Department of Economics, revised Dec 2004.

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    More about this item

    Keywords

    Central bank design; central bank independence; monetary policy delegation; policy coordination; policy game;
    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
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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