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Commitment vs. Discretion in the UK: An Empirical Investigation of Monetary and Fiscal Policy RegimeTatiana KirsanovaUniversity of Glasgow Stephanus Daniel Le RouxNIESR; Government of the United Kingdom - Department for Work and Pensions March 16, 2013 Abstract: 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, E63 working papers seriesDate posted: June 19, 2011 ; Last revised: March 18, 2013Suggested CitationContact Information
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