Monetary-Fiscal Policy Interactions and Indeterminacy in Postwar US Data

Saroj Bhattarai, Jae Won Lee and Woong Yong Park

American Economic Review, 2012, vol. 102, issue 3, 173-78

Abstract: Using a micro-founded model and a likelihood-based inference method, we show that while a passive monetary and passive fiscal policy regime prevailed in the U.S. before Paul Volcker's chairmanship at the Federal Reserve, an active monetary and passive fiscal policy regime prevailed after his appointment. Since both monetary and fiscal policies were passive pre-Volcker, equilibrium indeterminacy was a feature of the economy. Finally, pre-Volcker, the effects of unanticipated policy shifts were substantially different from those predicted by conventional monetary models: unanticipated increases in interest rates increased inflation and output, while unanticipated increases in lump-sum taxes decreased inflation and output.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (29)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.3.173 (application/pdf)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:102:y:2012:i:3:p:173-78

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert (mpa@aeapubs.org).