IMF Working Papers

Monetary Policy and Public Finances: Inflation Targets in a New Perspective

By Christian H. Beddies

March 1, 1999

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Christian H. Beddies Monetary Policy and Public Finances: Inflation Targets in a New Perspective, (USA: International Monetary Fund, 1999) accessed November 8, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper considers the interaction between the private sector, the monetary authority, and the fiscal authority, and concludes that unrestricted central bank independence may not be an optimal way to collect seigniorage revenues or stabilize supply shocks. Moreover, the paper shows that the implementation of an optimal inflation target results in optimal shares of government finances—seigniorage, taxes, and the spending shortfall—from society’s point of view but still involves suboptimal stabilization. Even if price stability is the sole central bank objective, a positive inflation target has important implications for the government’s finances, as well as for stabilization.

Subject: Banking, Central bank autonomy, Central banks, Economic theory, Expenditure, Inflation, Inflation targeting, Monetary policy, Prices, Supply shocks

Keywords: Authorities move, Budget constraint, Central bank, Central bank autonomy, Financing requirement, Inflation, Inflation bias story, Inflation response, Inflation targeting, Inflation targets, Loss function, Optimization problem, Policy interaction, Public finances, Rate of inflation, Seigniorage, Supply shocks, Targeting regime, Unanticipated inflation, WP

Publication Details

  • Pages:

    25

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1999/026

  • Stock No:

    WPIEA0261999

  • ISBN:

    9781451844368

  • ISSN:

    1018-5941

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