Further evidence on monetary and fiscal policy coordination

Ruby Kishan and Timothy Opiela

International Advances in Economic Research, 2000, vol. 6, issue 4, 672-685

Abstract: The extent to which fiscal and monetary policies respond to inflation and unemployment and the degree to which policy makers coordinate their policies have important implications for their usefulness as instruments of economic stabilization. Using a framework of minimizing a policy maker's loss function, subject to the state of the economy, this paper tests for the joint determination of monetary and fiscal policies. Our results show that the pre-Reagan/Bush and pre-Volcker/Greenspan eras can be characterized by a noncooperative game between the two policies. For the Reagan/Bush and Volcker/Greenspan regimes, our results are consistent with a cooperative game in which fiscal policy dominates and monetary policy accommodates. Our results also have implications for the possibility of future cooperation by policy makers. Copyright International Atlantic Economic Society 2000

Date: 2000
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DOI: 10.1007/BF02295377

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