Monetary and Fiscal Policy Interactions in an Emerging Open Economy: a Non-Ricardian DSGE Approach

Aliya Algozhina

No 94, FIW Working Paper series from FIW

Abstract: The monetary and fiscal policy interactions have gained a new research interest after the 2008 crisis due to the global increase of fiscal debt. This paper constructs a macroeconomic model of joint fiscal and monetary policy for an emerging open economy taking into account its structural uniqueness. In particular, the two instruments of monetary policy, interest rate and foreign exchange intervention, the two instruments of fiscal policy, public consumption and public investment, the two types of households, optimizers and rule-ofthumb individuals, and a foreign debt via collateral constraint are modeled here in a single DSGE framework. The parameters are calibrated for the case of Hungary using data over 1995Q1-2011Q3. The impulse response functions to public investment, public consumption, and interest rate shocks reveal some unconventional findings in favor of the fiscal theory of price level as opposed to the traditional monetarist doctrine.

Keywords: monetary policy; fiscal policy; emerging open economy; collateral constraint; fiscal theory of price level (search for similar items in EconPapers)
JEL-codes: E31 E52 E62 E63 F41 H54 H63 (search for similar items in EconPapers)
Pages: 33
Date: 2012-05, Revised 2012-12
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: Monetary and Fiscal Policy Interactions in an Emerging Open Economy: A Non-Ricardian DSGE Approach (2012)
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