Discussion paper

DP3395 Government Leadership and Central Bank Design

This article investigates the impact on economic performance of the timing of moves in a policy game between the government and the central bank for a government with both distributional and stabilization objectives. It is shown that both inflation and income inequality are reduced without sacrificing output growth if the government assumes a leadership role compared to a regime in which monetary and fiscal policy is determined simultaneously. Further, it is shown that government leadership benefits both the fiscal and monetary authorities. The implications of these results for a country deciding whether to join a monetary union are also considered.


Hughes Hallett, A and D Weymark (2002), ‘DP3395 Government Leadership and Central Bank Design‘, CEPR Discussion Paper No. 3395. CEPR Press, Paris & London. https://cepr.org/publications/dp3395