U.S. and Euro Area Monetary and Fiscal Interactions During the Pandemic: A Structural Analysis
Andrew Hodge,
Zoltán Jakab,
Jesper Lindé and
Vina Nguyen
No 2022/222, IMF Working Papers from International Monetary Fund
Abstract:
This paper employs a two-country New Keynesian DSGE model to assess the macroeconomic impact of the changes in monetary policy frameworks and the fiscal support in the U.S. and euro area during the pandemic. Moving from a previous target of “below, but close to 2 percent” to a formal symmetric inflation targeting regime in the euro area or from flexible to average inflation targeting in the U.S. is shown to boost output and inflation in both regions. Meanwhile, the fiscal packages approved in the U.S. and the euro area, and a slower withdrawal of fiscal support in the euro area, have a similar impact on output and inflation as changing the monetary policy frameworks . Simultaneously implementing these policies is mutually reinforcing, but insufficient to fully explain the unexpected increase in core inflation during 2021.
Keywords: Fiscal Policy; Monetary Policy; DSGE Model; inflation targeting in the U.S.; IMF working paper 22/222; changes in the U.S.; Phillips curve; AIT gap; Inflation; Fiscal stimulus; Interest rate floor; Public investment spending; Central bank policy rate; Global; Western Hemisphere (search for similar items in EconPapers)
Pages: 47
Date: 2022-11-11
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec and nep-mon
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Citations: View citations in EconPapers (1)
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