Government Leadership and Central Bank Design

29 Pages Posted: 18 Jul 2002

See all articles by Andrew J. Hughes

Andrew J. Hughes

Cardiff Business School; Centre for Economic Policy Research (CEPR); Vanderbilt University - College of Arts and Science - Department of Economics

Diana N. Weymark

Vanderbilt University - College of Arts and Science - Department of Economics; Western Washington University

Date Written: May 2002

Abstract

This article investigates the impact on economic performance of the timing of moves in a policy game between the government and the central bank for a government with both distributional and stabilization objectives. It is shown that both inflation and income inequality are reduced without sacrificing output growth if the government assumes a leadership role compared to a regime in which monetary and fiscal policy is determined simultaneously. Further, it is shown that government leadership benefits both the fiscal and monetary authorities. The implications of these results for a country deciding whether to join a monetary union are also considered.

Keywords: Central bank independence, monetary policy delegation, policy coordination, policy game, policy leadership

JEL Classification: E52, E61, F42

Suggested Citation

Hughes Hallett, Andrew J. and Weymark, Diana N., Government Leadership and Central Bank Design (May 2002). Available at SSRN: https://ssrn.com/abstract=319001

Andrew J. Hughes Hallett (Contact Author)

Cardiff Business School ( email )

Aberconway Building
Cardiff CF10 3EU
United Kingdom
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States
615-322-8539 (Phone)
615-343-8495 (Fax)

Diana N. Weymark

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States
615-322-3445 (Phone)
615-343-8495 (Fax)

HOME PAGE: http://people.vanderbilt.edu/~diana.weymark/

Western Washington University ( email )

516 High Street
Bellingham, WA 98225-9077
United States
360-650-2867 (Phone)
360-650-4844 (Fax)

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