Monetary-fiscal interactions during large-scale asset purchase programs

Marcin Kolasa, Małgorzata Walerych and Grzegorz Wesołowski
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Marcin Kolasa: SGH Warsaw School of Economics, IMF International Monetary Fund

No 2025-08, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: This paper examines the effects of asset purchase programs (APPs) that were implemented in a number of countries during the COVID-19 pandemic in concert with large fiscal stimulus packages. We identify APP shocks for 14 advanced and emerging market economies using high-frequency identification techniques. We next estimate panel local projections, finding that APPs tend to stimulate output, but decrease prices. By using a Kitagawa-Blinder-Oaxaca decomposition, we demonstrate that these responses significantly depend on the magnitude of the simultaneously applied fiscal stimulus. Remarkably, higher government purchases during that period crowded in private consumption and had a large effect on inflation. We show that these empirical findings, some of which are inconsistent with a standard New Keynesian framework, can be rationalized in a simple general equilibrium model with segmented asset markets and fiscal dominance.

Keywords: asset purchases; monetary-fiscal interactions; fiscal dominance; high-frequency identification; local projections; general equilibrium models (search for similar items in EconPapers)
JEL-codes: E44 E52 F41 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2025
New Economics Papers: this item is included in nep-dge
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https://www.wne.uw.edu.pl/download_file/5390/0 First version, 2025 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2025-08

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