EconPapers    
Economics at your fingertips  
 

Monetary and Fiscal Policy Coordination During Fiscal Dominance Regimes

Vighneswara Swamy ()

World Economics, 2020, vol. 21, issue 3, 183-214

Abstract: This study empirically examines the interaction between monetary and fiscal policy by using vector auto regressions (VAR) and a vector error-correction model (VECM) and explores the need for coordination. • We also analyse a Stackelberg interaction model with government leadership to know the strategic interaction between monetary and fiscal policy. The findings show that an unexpected increase in the monetary policy effect: (i) has a contractionary impact on economic growth; (ii) leads to a gradual decline in inflation; (iii) tightens liquidity conditions; and (iv) leads to a rise in bond yields. On the other hand, an unexpected increase in the fiscal policy effect: (i) has a positive effect on GDP growth; (ii) prompts an initial decline, then a gradual rise in inflation levels; (iii) leads to falling bond yields. Monetary policy is found to be more responsive to fiscal policy effects. The results imply that there is a greater need for effective coordination between monetary and fiscal policy as a sufficient condition to achieve economic stability.

Date: 2020
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.world-economics-journal.com/Contents/ArticleOverview.aspx?ID=811 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wej:wldecn:811

Access Statistics for this article

More articles in World Economics from World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE
Bibliographic data for series maintained by Ed Jones ().

 
Page updated 2021-12-18
Handle: RePEc:wej:wldecn:811