Monetary and Fiscal Coordination in Small Open Economies

IMF Working Papers, March 1, 2000

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Monetary and Fiscal Coordination in Small Open Economies

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Bibliographic details

• Authors: Rupert D Worrell
• Published: March 1, 2000
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451847697.001

Summary / Key findings

• The paper is concerned with the design of institutional arrangements for low inflation in small open economies.
• In the real world of information asymmetries, uncertain expectations and changeable preferences, creating an autonomous and publicly accountable central bank is necessary but not sufficient.
• Effective low-inflation outcomes require the central bank and the treasury to work together on:
  • the design, implementation, monitoring and, when necessary, the revision of macroeconomic policy;
  • providing the public with information on ongoing economic developments and interpretation of the macroeconomic strategy.
• The Working Paper emphasizes the importance of coordination between monetary and fiscal authorities to achieve credible low-inflation policies in small open economies.

Policy recommendations / Institutional implications

• Establish central bank autonomy and public accountability as a baseline institutional arrangement.
• Build formal and informal mechanisms for coordination between the central bank and the treasury for:
  • joint design of macroeconomic policy frameworks;
  • coordinated implementation and monitoring of policy actions;
  • procedures for revising macroeconomic policy when conditions change;
  • joint communication strategies to inform the public about economic developments and the macroeconomic strategy.
• Recognize and address real-world constraints such as information asymmetries, uncertain expectations, and changing preferences when designing institutional arrangements.

Subjects and keywords (as listed)

• Subjects: Banking, Exchange rates, Expenditure, Fiscal policy, Foreign exchange, Inflation, Institutional arrangements for revenue administration, Prices, Revenue administration
• Keywords: borrowing requirement, budgetary cycle, Caribbean, central bank authority, central bank autonomy, Central Bank Independence, conscientious government, debt management, economic policy, Exchange rates, financing requirement, government financing, government paper, government undertaking, Inflation, Institutional arrangements for revenue administration, Monetary Policy, WP

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• Monetary and Fiscal Coordination in Small Open Economies - WP/00/56
  • Monetary and Fiscal Coordination in Small Open Economies - WP/00/56 (Markdown version)
  • Monetary and Fiscal Coordination in Small Open Economies - WP/00/56 (PDF)