Empirical Monetary-Fiscal Equivalence

Ulf Nielsson (), Jesper Rangvid (), Farzad Saidi (), Fabian Seyrich () and Daniel Streitz ()
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Ulf Nielsson: Copenhagen Business School
Jesper Rangvid: Copenhagen Business School
Farzad Saidi: University of Bonn & CEPR
Fabian Seyrich: Frankfurt School of Finance & Management & DIW Berlin
Daniel Streitz: Halle Institute for Economic Research (IWH) & University of Jena

No 367, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: What stimulus payments replicate the consumption effect of a desired (but potentially infeasible) interest rate cut? Using granular full-population administrative data, we estimate consumption responses to interest rate changes via adjustable-rate mortgage resets and lump-sum cash windfalls from unanticipated inheritances. Combining them, we map a 1 percentage point monetary-policy rate decrease to equivalent uniform transfers of ~$1,000 per person paid over 5 years, totaling 1.3% of GDP. This estimate remains robust when accounting for heterogeneity in the cross-sectional incidence of these macro-equivalent policies. We find only modest heterogeneity in marginal propensities to consume, limiting efficiency gains from targeting transfers.

Keywords: Marginal propensity to consume; monetary policy; fiscal policy; mortgages (search for similar items in EconPapers)
JEL-codes: D12 E21 E43 E52 E63 G51 H31 (search for similar items in EconPapers)
Pages: 69
Date: 2025-07
New Economics Papers: this item is included in nep-cba
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:367

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