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Myopic governments and conservative central banks: are they compatible?

Author

Listed:
  • Cornel OROS

    (CRIEF, Université de Poitiers et LEO, Université d'Orléans)

  • Blandine ZIMMER

    (LaRGE Research Center, Université de Strasbourg)

Abstract
Governments fear spending disturbances. To derive their optimal scal decisions, they use the robust control approach developed by Hansen and Sargent (2005, 2008). Results show that myopic governments, being more concerned by short-term spending imperatives than by the economy's output level, react to central bank conservatism by setting high taxes, detrimental to macroeconomic performances. Consequently, delegating monetary policy to not too a conservative central bank seems appropriate.

Suggested Citation

  • 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.
    • Handle: RePEc:lar:wpaper:2019-06
    as

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    File URL: http://ifs.u-strasbg.fr/large/publications/2019/2019-06.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    budget uncertainty; robust control; monetary delegation.;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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