U.S. Monetary and Fiscal Policies - Conflict or Cooperation?

Xiaoshan Chen, Eric Leeper and Campbell Leith

Working Papers from Business School - Economics, University of Glasgow

Abstract: We estimate a model in which both fiscal and monetary policy behavior arise from the optimizing behavior of distinct monetary and fiscal authorities. Optimal time-consistent policy behavior fits U.S. time series at least as well as rules-based behavior. American policy makers have often been in conflict. After the Volcker disinflation, policies did not achieve the conventional mix of a conservative monetary policy paired with a debt-stabilizing fiscal policy. If credible, a conservative central bank that follows a time-consistent fiscal policy leader would come close to mimicking the cooperative Ramsey policy. Enhancing cooperation between policy makers without an ability to commit would be detrimental to welfare.

Keywords: Bayesian Estimation; Monetary and Fiscal Policy Interactions; Optimal Policy; Markov Switching (search for similar items in EconPapers)
JEL-codes: C11 E31 E63 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: US Monetary and Fiscal Policies - Conflict or Cooperation? (2015)
Working Paper: US Monetary and Fiscal Policies - conflict or cooperation? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2020_04

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