Conservative Central Banks Crucial for Controlling Excessive Public Spending
The article explores whether it is still a good idea to have a conservative central bank that focuses on keeping inflation low when the government can change its spending levels. The researchers looked at how monetary and fiscal policies interact in an economy with sticky prices and found that without a commitment from the government, there can be too much public spending. They discovered that having a conservative central bank can help offset the negative effects of uncertain government spending and improve overall economic stability.