U.S. monetary-fiscal regime changes in the presence of endogenous feedback in policy rules

Yoosoon Chang () and Boreum Kwak

No 15/2017, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: We investigate U.S. monetary and fiscal policy regime interactions in a model, where regimes are determined by latent autoregressive policy factors with endogenous feedback. Policy regimes interact strongly: Shocks that switch one policy from active to passive tend to induce the other policy to switch from passive to active, consistently with existence of a unique equilibrium, though both policies are active and government debt grows rapidly in some periods. We observe relatively strong interactions between monetary and fiscal policy regimes after the recent financial crisis. Finally, latent policy regime factors exhibit patterns of correlation with macroeconomic time series, suggesting that policy regime change is endogenous.

Keywords: monetary and fiscal policy interactions; endogenous regime switching; adaptive LASSO; time-varying coefficient VAR; factor augmented VAR (search for similar items in EconPapers)
JEL-codes: C13 C32 C38 E52 E58 E63 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-cba and nep-mac
Note: A completely revised version of this paper has been published as Chang, Yoosoon; Kwak, Boreum; Qiu, Shi: U.S. Monetary and Fiscal Policy Regime Changes and Their Interactions. IWH Discussion Paper 12/2021. Halle (Saale) 2021: https://hdl.handle.net/10419/247268
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Citations: View citations in EconPapers (5)

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Working Paper: U.S. Monetary-Fiscal Regime Changes in the Presence of Endogenous Feedback in Policy Rules (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:152017

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