Empirical evidence on the U.S. monetary-fiscal policy mix

Emiliano Carlevaro, Qazi Haque and Leandro Magnusson

School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

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)
Date: 2025-05
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Working Paper: Empirical Evidence on the U.S. Monetary-Fiscal Policy Mix (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:adl:wpaper:2025-05

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