Some Cross-Country Evidence about Debt, Deficits and the Behaviour of Monetary and Fiscal Authorities

Jacques Melitz

No 1653, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper assesses how monetary authorities behave and how they interact. Pooled data for the 15 members of the European Union except Luxembourg and five other OECD countries serves to answer these questions. Three basic conclusions emerge. First, fiscal policy responds to the ratio of public debt to output in a stabilizing manner. Second, coordinated macroeconomic policy exists: easy fiscal policy leads to tight monetary policy, and easy monetary policy to tight fiscal policy. Third, both monetary and fiscal policy respond to the cycle in a stabilizing manner, but automatic stabilization through fiscal policy is much weaker than generally perceived. Expansion raises tax receipts but also government expenditures. The destabilizing response on the expenditure side is also extremely marked.

Keywords: Fiscal Policy; Monetary Policy; Policy Coordination; Public Debt (search for similar items in EconPapers)
JEL-codes: E60 E63 (search for similar items in EconPapers)
Date: 1997-05
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