Discussion paper

DP2324 Inflation Targets and Debt Accumulation in a Monetary Union

This paper explores the interaction between centralized monetary policy and decentralized fiscal policy in a monetary union. Discretionary monetary policy suffers from a failure to commit. Moreover, decentralized fiscal policymakers impose externalities on each other through the influence of their debt policies on the common monetary policy. These imperfections can be alleviated by adopting state-contingent inflation targets (to combat the monetary policy commitment problem) and shock-contingent debt targets (to internalize the externalities due to decentralized fiscal policy).

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Citation

Beetsma, R and L Bovenberg (1999), ‘DP2324 Inflation Targets and Debt Accumulation in a Monetary Union‘, CEPR Discussion Paper No. 2324. CEPR Press, Paris & London. https://cepr.org/publications/dp2324

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VoxEU Column

Today’s inflation and the Great Inflation of the 1970s: Similarities and differences

    ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png)
  • Global economy
    • ![](../../../../../../../../../../var/folders/34/zq18d8kx7kbgby0j06p_j6t40000gn/T/TemporaryItems/NSIRD_screencaptureui_EM2XPo/Screenshot 2022-01-04 at 17.01.16.png)
  • Monetary Policy