Journal of Economics

, Volume 56, Issue 3, pp 247–266 | Cite as

Time inconsistency problems and commitments of monetary and fiscal policies

  • Henrik Jensen


Within a policy game, where monetary and fiscal authorities are subject to a time inconsistency problem vis-à-vis a monopoly-union, we provide additional support for commitments of either authority: monetary commitment moderates fiscal time inconsistency problems, and fiscal commitment moderates monetary time inconsistency problems. In contrast with the benefits of commitments, a regime of coordinated monetary and fiscal policy may turn out to be counterproductive.


Economic Theory International Economic Fiscal Policy Time Inconsistency Inconsistency Problem 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Alesina, A., and Tabellini, G. (1987): “Rules and Discretion with Non-Coordinated Monetary and Fiscal Policies.”Economic Inquiry 25: 619–630.Google Scholar
  2. Backus, D., and Driffill, J. (1985): “Inflation and Reputation.”American Economic Review 75: 530–538.Google Scholar
  3. Barro, R. J., and Gordon, D. B. (1983a): “A Positive Theory of Monetary Policy in a Natural Rate Model.”Journal of Political Economy 91: 589–610.Google Scholar
  4. — (1983b): “Rules, Discretion and Reputation in a Model of Monetary Policy.”Journal of Monetary Economics 12: 101–121.Google Scholar
  5. Blackburn, K., and Christensen, M. (1989): “Monetary Policy and Policy Credibility—Theories and Evidence.”Journal of Economic Literature 27: 1–45.Google Scholar
  6. Calmfors, L. (1982): “Employment Policies, Wage Formation and Trade Union Behaviour in a Small Open Economy.”Scandinavian Journal of Economics 84: 345–373.Google Scholar
  7. Calmfors, L., and Horn, H. (1985): “Classical Unemployment, Accommodation Policies and the Adjustment of Real Wages.”Scandinavian Journal of Economics 87: 234–261.Google Scholar
  8. — (1986): “Employment Policies and Centralized Wage-setting.”Economica 53: 281–302.Google Scholar
  9. Canzoneri, M. B., and Henderson, D. W. (1991):Monetary Policy in Interdependent Economies. Cambridge, MA: The MIT Press.Google Scholar
  10. Driffill, J. (1985): “Macroeconomic Stabilization Policy and Trade Union Behaviour as a Repeated Game.”Scandinavian Journal of Economics 87: 300–326.Google Scholar
  11. Jensen, H. (1993a): “International Monetary Policy Cooperation in Economies with Centralized Wage Setting.”Open Economies Review, forthcoming.Google Scholar
  12. Jensen, H. (1993b): “Uncertainty in Interdependent Economies with Monopoly Unions.”Journal of Macroeconomics, forthcoming.Google Scholar
  13. Kehoe, P. J. (1989): “Policy Cooperation among Benevolent Governments may be Undesirable.Review of Economic Studies 56: 289–296.Google Scholar
  14. Kydland, F. E., and Prescott, E. C. (1977): “Rules Rather than Discretion: The Inconsistency of Optimal Plans.”Journal of Political Economy 85: 473–491.Google Scholar
  15. McDonald, I. M., and Solow, R. M. (1981): “Wage Bargaining and Employment.”American Economic Review 71: 896–908.Google Scholar
  16. Oswald, A. (1985): “The Economic Theory of Trade Unions: An Introductory Survey.”Scandinavian Journal of Economics 87: 160–193.Google Scholar
  17. Persson, T., and Tabellini, G. (1990):Macroeconomic Policy Credibility and Politics. New York: Harwood Academic Publishers.Google Scholar
  18. Rogoff, K. (1985a): “The Optimal Degree of Commitment to an Intermediary Monetary Target.”Quaterly Journal of Economics 100: 1169–1189.Google Scholar
  19. — (1985b): “Can International Monetary Policy Cooperation be Counter-productive?”Journal of International Economics 18: 199–217.Google Scholar
  20. Tabellini, G. (1987a): “Central Bank Reputation and the Monetization of Deficits: The 1981 Italian Monetary Reform.”Economic Inquiry 25: 185–200.Google Scholar
  21. — (1987b): “Optimal Monetary Instruments and Policy Games.”Ricerche Economiche 16: 315–325.Google Scholar

Copyright information

© Springer-Verlag 1992

Authors and Affiliations

  • Henrik Jensen
    • 1
  1. 1.Institute of EconomicsUniversity of AarhusAarhus CDenmark

Personalised recommendations