Central banks can lean against fiscal dominance – BoC paper
Authors find monetary policy works better when conditional on fiscal policy
Central banks can generate better outcomes if they use their monetary policy to incentivise “sound” fiscal policy, research published by the Bank of Canada finds.
In The central bank strikes back!, authors Antoine Camous and Dmitry Matveev conduct analysis of a “non co-operative game” between the central bank and fiscal authority. They explore two scenarios: one in which the central bank sets monetary policy without considering fiscal policy, and one where the central bank responds
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