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Monetary and fiscal policy interaction and government debt stabilization
van Aarle,B. Bovenberg,A.L. Raith,M.
van Aarle,B.
Bovenberg,A.L.
Raith,M.
Abstract
In many developing and developed countries, government debt stabilization is an important policy issue. This paper models the strategic interaction between the monetary authorities who control monetization and the fiscal authorities who control primary fiscal deficits. Government debt dynamics are driven by the interest payments on outstanding debt and the part of the primary fiscal deficits that is not monetized. Modelling the interaction as a differential game, we compare the cooperative equilibrium and the non-cooperative Nash open-loop equilibrium. The well-known unpleasant monetarist arithmetic is reinterpreted in this differential game framework. We consider also the effects of making the Central Bank more independent.
Description
Pagination: 38
Date
1995
Journal Title
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Volume Title
Publisher
Unknown Publisher
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Keywords
Game Theory, Central Banks, Monetary Policy, National Debt, Fiscal Policy, monetary economics, E58 - Central Banks and Their Policies, E52 - Monetary Policy, E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems, E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy ; Stabilization ; Treasury Policy, C73 - Stochastic and Dynamic Games ; Evolutionary Games ; Repeated Games, SDG 17 - Partnerships for the Goals
Citation
van Aarle, B, Bovenberg, A L & Raith, M 1995 'Monetary and fiscal policy interaction and government debt stabilization' CentER Discussion Paper, vol. 1995-1, Unknown Publisher.
License
info:eu-repo/semantics/restrictedAccess