Fiscal and Monetary Regime: A Strategic Approach

Jean Barthélemy (1) , Guillaume Plantin (2)

1 Centre de recherche de la Banque de France
2 ECON - Département d'économie (Sciences Po)

This paper develops a full-fledged strategic analysis of Wallace's "game of chicken". A public sector facing legacy nominal liabilities is comprised of fiscal and monetary authorities that respectively set the primary surplus and the price level in a non-cooperative fashion. We find that the post 2008 feature of indefinitely postponed fiscal consolidation and rapid expansion of the Federal Reserve's balance sheet is consistent with a strategic setting in which neither authority can commit to a policy beyond its current mandate, and the fiscal authority moves before the monetary one at each date.

Domaines: Economies et finances

Jean Barthélemy, Guillaume Plantin. Fiscal and Monetary Regime: A Strategic Approach. 2018. ⟨hal-03815028⟩