Monetary and fiscal policy interaction and government debt stabilization

B. van Aarle, A.L. Bovenberg, M. Raith

Research output: Working paperDiscussion paperOther research output

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Abstract

In many developing and developed countries, government debt stabilization is an important policy issue. This paper models the strategic interaction between the monetary authorities who control monetization and the fiscal authorities who control primary fiscal deficits. Government debt dynamics are driven by the interest payments on outstanding debt and the part of the primary fiscal deficits that is not monetized. Modelling the interaction as a differential game, we compare the cooperative equilibrium and the non-cooperative Nash open-loop equilibrium. The well-known unpleasant monetarist arithmetic is reinterpreted in this differential game framework. We consider also the effects of making the Central Bank more independent.
Original languageEnglish
PublisherUnknown Publisher
Number of pages38
Volume1995-1
Publication statusPublished - 1995

Publication series

NameCentER Discussion Paper
Volume1995-1

Fingerprint

Authority
Monetary and fiscal policy
Differential games
Stabilization
Fiscal deficit
Government debt
Interaction
Developing countries
Open-loop Nash equilibrium
Fiscal
Payment
Central bank
Debt
Strategic interaction
Modeling
Developed countries

Keywords

  • Game Theory
  • Central Banks
  • Monetary Policy
  • National Debt
  • Fiscal Policy
  • monetary economics

Cite this

van Aarle, B., Bovenberg, A. L., & Raith, M. (1995). Monetary and fiscal policy interaction and government debt stabilization. (CentER Discussion Paper; Vol. 1995-1). Unknown Publisher.
van Aarle, B. ; Bovenberg, A.L. ; Raith, M. / Monetary and fiscal policy interaction and government debt stabilization. Unknown Publisher, 1995. (CentER Discussion Paper).
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van Aarle, B, Bovenberg, AL & Raith, M 1995 'Monetary and fiscal policy interaction and government debt stabilization' CentER Discussion Paper, vol. 1995-1, Unknown Publisher.

Monetary and fiscal policy interaction and government debt stabilization. / van Aarle, B.; Bovenberg, A.L.; Raith, M.

Unknown Publisher, 1995. (CentER Discussion Paper; Vol. 1995-1).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Monetary and fiscal policy interaction and government debt stabilization

AU - van Aarle, B.

AU - Bovenberg, A.L.

AU - Raith, M.

N1 - Pagination: 38

PY - 1995

Y1 - 1995

N2 - In many developing and developed countries, government debt stabilization is an important policy issue. This paper models the strategic interaction between the monetary authorities who control monetization and the fiscal authorities who control primary fiscal deficits. Government debt dynamics are driven by the interest payments on outstanding debt and the part of the primary fiscal deficits that is not monetized. Modelling the interaction as a differential game, we compare the cooperative equilibrium and the non-cooperative Nash open-loop equilibrium. The well-known unpleasant monetarist arithmetic is reinterpreted in this differential game framework. We consider also the effects of making the Central Bank more independent.

AB - In many developing and developed countries, government debt stabilization is an important policy issue. This paper models the strategic interaction between the monetary authorities who control monetization and the fiscal authorities who control primary fiscal deficits. Government debt dynamics are driven by the interest payments on outstanding debt and the part of the primary fiscal deficits that is not monetized. Modelling the interaction as a differential game, we compare the cooperative equilibrium and the non-cooperative Nash open-loop equilibrium. The well-known unpleasant monetarist arithmetic is reinterpreted in this differential game framework. We consider also the effects of making the Central Bank more independent.

KW - Game Theory

KW - Central Banks

KW - Monetary Policy

KW - National Debt

KW - Fiscal Policy

KW - monetary economics

M3 - Discussion paper

VL - 1995-1

T3 - CentER Discussion Paper

BT - Monetary and fiscal policy interaction and government debt stabilization

PB - Unknown Publisher

ER -

van Aarle B, Bovenberg AL, Raith M. Monetary and fiscal policy interaction and government debt stabilization. Unknown Publisher. 1995. (CentER Discussion Paper).