Abstract
This article studies the open-economy Rogoff delegation game, taking into account both intra-country and intercountry interactions between fiscal authorities and central banks. With representative bankers, the Nash equilibrium of fiscal and monetary authorities independently responding to supply-side shocks sees insufficient monetary adjustment and an imbalance towards fiscal stabilization if shocks are sufficiently symmetric; the opposite occurs if shocks are sufficiently asymmetric. Appointing conservative bankers shifts the fiscal–monetary balance away from monetary towards fiscal policy. Unilateral delegation benefits that country; but when all countries independently delegate, the outcome is only favorable if shocks are sufficiently asymmetric.
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Levine, P., Pearlman, J. Delegation and Fiscal Policy in the Open Economy: More Bad News for Rogoff's Delegation Game. Open Economies Review 13, 153–174 (2002). https://doi.org/10.1023/A:1013973214733
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DOI: https://doi.org/10.1023/A:1013973214733