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Policy uncertainty, symbiosis, and the optimal fiscal and monetary conservativeness

Author

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  • Giovanni Di Bartolomeo
  • Francesco Giuli
  • Marco Manzo
Abstract
This paper extends the stabilization game between monetary and fiscal authorities to the case of multiplicative (model) uncertainty. In this context, the “symbiosis assumption”, i.e. fiscal and monetary policy share the same ideal targets, no longer guarantees the achievement of ideal output and inflation, unless the ideal output is equal to its natural level. A time consistency problem arises.
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Suggested Citation

  • Giovanni Di Bartolomeo & Francesco Giuli & Marco Manzo, 2009. "Policy uncertainty, symbiosis, and the optimal fiscal and monetary conservativeness," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 36(4), pages 461-474, November.
    • Handle: RePEc:kap:empiri:v:36:y:2009:i:4:p:461-474
    DOI: 10.1007/s10663-009-9104-9
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    Citations

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    Cited by:

    1. Canofari, Paolo & Di Bartolomeo, Giovanni, 2017. "Regime switches under policy uncertainty in monetary unions," European Journal of Political Economy, Elsevier, vol. 47(C), pages 124-132.
    2. Meixing Dai & Moïse Sidiropoulos, 2017. "How multiplicative uncertainty affects the tradeoff between information disclosure and stabilisation policy?," Working Papers of BETA 2017-15, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    3. Meixing Dai & Moïse Sidiropoulos, 2011. "Fiscal disciplining effect of central bank opacity: Stackelberg versus Nash equilibrium," Economics Bulletin, AccessEcon, vol. 31(4), pages 3068-3076.
    4. Jacob Engwerda & Davoud Mahmoudinia & Rahim Dalali Isfahani, 2016. "Government and Central Bank Interaction under Uncertainty: A Differential Games Approach," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 20(2), pages 225-259, Spring.
    5. Olga S. Kuznetsova & Sergey A. Merzlyakov, 2015. "The Role of Uncertain Government Preferences For Fiscal and Monetary Policy Interaction," HSE Working papers WP BRP 102/EC/2015, National Research University Higher School of Economics.
    6. Oros, Cornel & Zimmer, Blandine, 2020. "Budget uncertainty in a monetary union," European Journal of Political Economy, Elsevier, vol. 63(C).
    7. Cornel OROS & Blandine ZIMMER, 2019. "Myopic governments and conservative central banks: are they compatible?," Working Papers of LaRGE Research Center 2019-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    8. Di Bartolomeo, Giovanni & Giuli, Francesco, 2011. "Fiscal and monetary interaction under monetary policy uncertainty," European Journal of Political Economy, Elsevier, vol. 27(2), pages 369-375, June.
    9. Z. Nikooeinejad & M. Heydari & M. Saffarzadeh & G. B. Loghmani & J. Engwerda, 2022. "Numerical Simulation of Non-cooperative and Cooperative Equilibrium Solutions for a Stochastic Government Debt Stabilization Game," Computational Economics, Springer;Society for Computational Economics, vol. 59(2), pages 775-801, February.
    10. Capasso, Salvatore & Foresti, Pasquale, 2024. "Monetary-fiscal policies design and financial shocks in currency unions," LSE Research Online Documents on Economics 124371, London School of Economics and Political Science, LSE Library.
    11. Pasquale Foresti, 2018. "Monetary And Fiscal Policies Interaction In Monetary Unions," Journal of Economic Surveys, Wiley Blackwell, vol. 32(1), pages 226-248, February.
    12. Salvatore Capasso & Pasquale Foresti, 2024. "Monetary-fiscal policies design and financial shocks in currency unions," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 41(2), pages 439-455, July.

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    More about this item

    Keywords

    Monetary-fiscal policy interactions; Nash equilibrium uncertainty; Symbiosis; E61; E63;
    All these keywords.

    JEL classification:

    • 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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