Fiscal Policy and Imperfectly Credible Targets: Should We Appoint Expenditure-Conservative Central Bankers?

We reconsider Svensson’s inflation-targeting proposal in a model where the need to raise seigniorage revenues determines the socially optimal inflation rate and distortionary taxes cause the inflation bias. Interpreting the targets as contracts, we show that the interaction between fiscal and monetary policy complicates the structure of the optimal contract. Moreover, if the commitment technology is imperfect, “highish” targets generate lower inflation than targets which are too low to be credible. Then we turn to an interpretation of inflation targets as monetary policy delegation to a nondistortionary, target-conservative agent. In our model target-conservative bankers are public-expenditure conservative. Expenditure-conservatism may explain why central bank independence is orthogonal to output variability.

Rethinking EMU Institutions

Building on widespread criticisms of current EMU institutional arrangements, we sketch a reform proposal for EMU macroeconomic institutions. We advocate the adoption of targets for both monetary and fiscal policies, to be integrated by a system of checks and balances. As for fiscal policy, expenditures, taxation and deficit targets will strengthen the governments commitment and, at the same time, facilitate "wellbehaved" stabilisation policies. Turning to monetary policy, inflation targeting, alongside with the assignment of ex-post assessing powers to the European Parliament and an internal reform of the ECB, will limit undue nationalistic influences within the ECB governing bodies.

A Reform Proposal for EMU Institutions

In this paper, we discuss a reform proposal for EMU macroeconomic institutions which rests on the generalised adoption of targets, for both monetary and fiscal policies, to be integrated by a system of checks and balances. The new arrangements for fiscal policies should induce EMU countries to internalise the external effects of their own policies, therefore allowing a partial relaxation of the SGP limits to national debt policies. As for monetary policy, we propose the adoption of an inflation target, the assignment of ex-post assessing powers to the Euro12-group and an internal reform of the ECB. The latter should limit undue nationalistic influences within the ECB governing bodies.EMU, Institutional design

Do we really need to tame a conservative ECB? When the policy mix matters.

This paper contributes to the goal-versus-instrument independence debate for the ECB exploring how these alternative monetary arrangements perform when the fiscal authority pursues a strategy of debt reduction in the long term but retains fiscal flexibility in response to supply shocks. If fiscal policy is sufficiently flexible, appointing a goal independent (i.e. conservative) central banker dominates inflation targeting. In fact, as the fiscal authority and the central bank act independently in setting their countercyclical policies, an activist central banker causes excess volatility of inflation. This result provides theoretical content to the claim that a strong and goal-independent ECB needs a political match able to engineer countercyclical fiscal policies.

A Nominal Income Growth Target for a Conservative ECB? When the policy mix matters

This paper contributes to the goal-versus-instrument independence debate for the ECB, exploring how alternative monetary arrangements perform when the fiscal authority pursues a strategy of debt reduction in the long term but retains fiscal flexibility in response to supply shocks. If fiscal policy is countercyclical, a constant nominal income growth target should be assigned to a conservative central banker. In fact, as the fiscal authority and the central bank act independently in setting their countercyclical policies, an activist central banker causes excess volatility of inflation.

Fiscal Policy and Inflation Targets: Does Credibility Matters?

We reconsider Svensson’s inflation-targeting proposal in a model where the need to raise seigniorage revenues determines the socially optimal inflation rate and distortionary taxes cause the inflation bias. Interpreting the targets as contracts, we show that the interaction between fiscal and monetary policy complicates the structure of the optimal contract. Moreover, if the commitment technology is imperfect, «highish» targets generate lower inflation than targets, which are too low to be credible. Alternatively, interpreting inflation targets as policy delegation to a non-distortionary target-conservative agent, we show that target-conservative bankers are public-expenditures conservative. Unfortunately, only idiosyncratic views about the benefits from public expenditures can be invoked to justify expenditures-conservatism, implying that target-conservative agents are also weight-conservative.Central bank independence, Inflation targets

A Reform Proposal for EMU Institutions

In this paper, we discuss a reform proposal for EMU macroeconomic institutions which rests on the generalised adoption of targets, for both monetary and fiscal policies, to be integrated by a system of checks and balances. The new arrangements for fiscal policies should induce EMU countries to internalise the external effects of their own policies, therefore allowing a partial relaxation of the SGP limits to national debt policies. As for monetary policy, we propose the adoption of an inflation target, the assignment of ex-post assessing powers to the Euro12-group and an internal reform of the ECB. The latter should limit undue nationalistic influences within the ECB governing bodies

A Reform Proposal for EMU Institutions

In this paper, we discuss a reform proposal for EMU macroeconomic institutions which rests on the generalised adoption of targets, for both monetary and fiscal policies, to be integrated by a system of checks and balances. The new arrangements for fiscal policies should induce EMU countries to internalise the external effects of their own policies, therefore allowing a partial relaxation of the SGP limits to national debt policies. As for monetary policy, we propose the adoption of an inflation target, the assignment of ex-post assessing powers to the Euro12-group and an internal reform of the ECB. The latter should limit undue nationalistic influences within the ECB governing bodies

Gli Effetti Economici delle Sanzioni Imposte alla Russia: Una Prima Valutazione

The paper provides a first, temptative assessment of the economic and financial consequences of sanctions imposed on Russia after the Ukraine invasio