Commitment vs. Discretion in the UK: An Empirical Investigation of the Monetary and Fiscal Policy Regime
by Tatiana Kirsanovaa and Stephanus le Rouxb
This paper investigates the conduct of monetary and fiscal
policy in the post-ERM period in the United Kingdom. Using
a simple DSGE New Keynesian model of non-cooperative monetary
and fiscal policy interactions under fiscal intraperiod
leadership, we demonstrate that the past policy in the United
Kingdom is better explained by optimal policy under discretion
than under commitment. We estimate policy objectives of
both policymakers. We demonstrate that fiscal policy plays an
important role in identifying the monetary policy regime.
JEL Codes: E52, E61, E63.
Full article (PDF, 54 pages 603 kb)
a University of Glasgow
b Department for Work and Pensions