How Loose, how tight? A measure of monetary and fiscal stance for the euro area

Nicoletta Batini, Alessandro Cantelmo, Giovanni Melina and Stefania Villa

No 1295, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper builds a model-based dynamic monetary and fiscal conditions index (DMFCI) and uses it to examine the evolution of the joint monetary and fiscal policy stance in the euro area (EA) and its three largest member countries over the period 2007-2018. The index is based on the relative impacts of monetary and fiscal policy on demand using actual and simulated data from rich estimated models also featuring financial intermediaries and long-term government debt. The analysis highlights the short-lived fiscal expansion in the aftermath of the Global Financial Crisis, followed by a quick tightening, with monetary policy left as the 'only game in town' after 2013. Individual countries' DMFCIs show that national policy stances did not always mirror the evolution of the aggregate stance at EA level, due to the different fiscal stances.

Keywords: policy stance; euro area; monetary policy; fiscal policy. (search for similar items in EconPapers)
JEL-codes: E4 E5 E6 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac and nep-mon
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: How loose, how tight? A measure of monetary and fiscal stance for the euro area* (2021)
Working Paper: How Loose, How Tight? A Measure of Monetary and Fiscal Stance for the Euro Area (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1295_20

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