The paper analyses inflation targeting when two independent policy authorities (a central bank and a National Government) have divergent preferences for the optimal policy mix. We demonstrate that the main advantage of inflation targeting, as a policy regime, is that it represents a simple proxy...

This paper presents two views of the European sovereign debt crisis. The first is that countries in the South of the Eurozone were fiscally irresponsible and failed to implement pro-competitive supply side policies. The second view holds that the crisis reflects a deep divide between the...

A three-country model is used to analyze how country size affects inflation under different exchange rate regimes. Two countries, an anchor country (leader) and a pegging country (follower), are examined where the latter differs in size. We find that the leader's preference for floating over...