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Fiscal disciplining effect of central bank opacity: Stackelberg versus Nash equilibrium

Dai, Meixing and Sidiropoulos, Moïse (2011): Fiscal disciplining effect of central bank opacity: Stackelberg versus Nash equilibrium.

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Abstract

In a Stackelberg equilibrium, central bank opacity has a fiscal disciplining effect in the sense that it induces the government to reduce taxes and public expenditures, leading hence to lower inflation and output distortions. This effect could disappear or be dominated by the direct effect of opacity when the fiscal and monetary authorities play a Nash game.

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