Commitment vs. Discretion in the UK: An Empirical Investigation of Monetary and Fiscal Policy Regime
University of Glasgow
Stephanus Daniel Le Roux
NIESR; Government of the United Kingdom - Department for Work and Pensions
March 16, 2013
This paper investigates the conduct of monetary and fiscal policy in the post-ERM period in the UK. Using a simple DSGE New Keynesian model of non-cooperative monetary and fiscal policy interactions under fiscal intra-period leadership, we demonstrate that the past policy in the UK is better explained by optimal policy under discretion than under commitment. We estimate policy objectives of both policy makers. We demonstrate that fiscal policy plays an important role in identifying the monetary policy regime.
Number of Pages in PDF File: 58
Keywords: Monetary and Fiscal Policy, Commitment, Discretion, Macroeconomic Stabilisation, Bayesian Estimation
JEL Classification: E52, E61, E63working papers series
Date posted: June 19, 2011 ; Last revised: March 18, 2013
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