We analyse optimal discretionary games between a benevolent central bank and a myopic government in a New Keynesian model. First, when lump-sum taxes are available and public debt is absent, we show that a Nash game results in too much government spending and excessively high interest rates, while fiscal leadership reinstates the cooperative outcome under discretion. Second, we show that this familiar result breaks down when lump-sum taxes are unavailable. With government debt, the Nash equil...Expand abstract
- IMF Working Papers
- Publication date:
- Local pid:
- Copyright date:
Strategic Interactions between an Independent Central Bank and a Myopic Government with Government Debt.
If you are the owner of this record, you can report an update to it here: Report update to this record