Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/209782 
Authors: 
Year of Publication: 
2000
Series/Report no.: 
Arbeidsnotat No. 2000/9
Publisher: 
Norges Bank, Oslo
Abstract: 
This paper studies the strategic interaction between the fiscal and monetary authorities when the monetary policymaker pursues an underlying inflation target. Given that monetary policy is transparent and the fiscal policymaker can commit to a particular policy stance, the Stackelberg equilibrium can be implemented. If the conditions for Stackelberg leadership is not present, policies may end up in a Nash equilibrium, resulting in excessive interest and exchange rate volatility. Legislative restrictions on fiscal policy may then be stabilising, whereas they may be counterproductive in the Stackelberg case.
Subjects: 
small open economy
inflation targeting
policy coordination
policy interdependencies
JEL: 
E61
E63
E42
E52
Persistent Identifier of the first edition: 
ISBN: 
82-7553-166-7
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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