CEPR proposes solution for fiscal dilemma
Game theory and inflation targeting could provide the best solution to the problem of fiscal policy impacting monetary policy, a paper published by the Centre for Economic Policy Research (CEPR) finds.
Ambitious fiscal policy could result in an inflationary bias and a lack of monetary policy credibility even if the central bank is fully independent, patient and responsible.
The CEPR research proposes fiscal policy makers and central bankers use an asynchronous game framework. The framework would
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