Empirical Evidence on the U.S. Monetary-Fiscal Policy Mix

Emiliano Carlevaro, Qazi Haque and Leandro Magnusson
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Emiliano Carlevaro: School of Economics and Public Policy of Economics, University of Adelaide
Leandro Magnusson: Department of Economics, University of Western Australia, http://www.web.uwa.edu.au/person/leandro.magnusson

No 25-05, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: This paper revisits the U.S. fiscal-monetary policy mix using econometric methods that are robust to weak identification and sensitive to structural changes. We find that the pre-Volcker period was predominantly characterised by a passive monetary-passive fiscal regime, consistent with indeterminacy and the presence of self-fulfilling inflationary expectations. However, we cannot rule out the possibility of a passive monetary-active fiscal configuration during the 1960s and 1970s, in line with the Fiscal Theory of the Price Level. In contrast, the post-Volcker period exhibits strong evidence of an active monetary-passive fiscal regime, reflecting greater inflation control and fiscal discipline.

Keywords: Fiscal-monetary interactions; weak identification (search for similar items in EconPapers)
JEL-codes: C63 E31 E32 E52 E61 E63 (search for similar items in EconPapers)
Pages: 23
Date: 2025
New Economics Papers: this item is included in nep-his and nep-mon
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