The central bank, the treasury, or the market: Which one determines the price level?

• 成果类型: Article
• 署名作者: Barthelemy, Jean; Mengus, Eric; Plantin, Guillaume
• 署名单位: European Central Bank; Bank of France; Hautes Etudes Commerciales (HEC) Paris; Institut d'Etudes Politiques Paris (Sciences Po)
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2024.105885
• 发表日期: 2024
• 关键词: Fiscal-monetary interactions; Game of chicken

摘要

This paper studies a model in which the price level is the outcome of dynamic strategic interactions between fiscal and monetary authorities that pursue distinct objectives. The unpleasant monetarist arithmetic, whereby aggressive fiscal expansion forces the monetary authority to chicken out and to lose control of inflation, occurs only if the public sector lacks fiscal space, in the sense that public debt along the optimal fiscal path gets sufficiently close to the threshold above which the fiscal authority would find default optimal. Otherwise, monetary dominance prevails even though the central bank has neither commitment power nor fiscal backing.