THE CHOICE OF FISCAL POLICY SETTINGS UNDER ALTERNATIVE INFLATION TARGETS

摘要

This paper considers an open-loop Nash game between independent monetary and fiscal authorities. The monetary authority is concerned solely with achieving a desired rate of inflation. The fiscal authority has multiple objectives defined by specific preference parameters. A dynamic game theory approach is used to analyse the impact of different inflation targets on the long-term level of public debt, on the level of government expenditure, and on the dynamic path of the economy.