The effects of monetary policy across fiscal regimes

Roben Kloosterman, Dennis Bonam and Koen van der Veer

Working Papers from DNB

Abstract: We estimate the effects of monetary policy shocks across contractionary and expansion- ary fiscal regimes in the euro area. An expansionary monetary policy shock leads to an increase in inflation and output growth, but only when it occurs in the expansionary fiscal regime. In a contractionary fiscal regime, the responses to a monetary easing are insignificant or even negative. Similarly, a monetary tightening only reduces inflation and output in the contractionary fiscal regime. These results are robust to several alternative model specifications and underline the importance of the fiscal stance for the monetary transmission mechanism.

Keywords: regime-dependent effects of monetary policy; fiscal policy regimes, local projection methods (search for similar items in EconPapers)
JEL-codes: E52 E62 E63 (search for similar items in EconPapers)
Date: 2022-12
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:755

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