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

Author/Editor:

Christian H. Beddies

Publication Date:

March 1, 1999

Electronic Access:

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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.

Series:

Working Paper No. 1999/026

Subject:

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

English

Publication Date:

March 1, 1999

ISBN/ISSN:

9781451844368/1018-5941

Stock No:

WPIEA0261999

Pages:

25

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