Assessing the effects of monetary and fiscal policy

Stefano Neri

No 425, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper has two objectives: the first is to jointly analyse monetary and fiscal policy with a structural VAR model, evaluate the dynamic impact of policy shocks on U.S. output and prices and the contributions of these two sources to fluctuations in these variables. The second objective is to investigate if and how the effects of monetary policy are altered by the inclusion of fiscal policy variables in a benchmark monetary VAR. It is found that both monetary policy and fiscal policy have small effects on output and the price level and that neither of these shocks are important sources of fluctuations in either variable. The magnitude of the responses of output and prices to a monetary policy shock and the contribution of these shocks are reduced significantly once fiscal policy is introduced.

Keywords: fiscal policy; monetary policy; impulse responses; omitted variables (search for similar items in EconPapers)
JEL-codes: C32 E52 E63 H3 (search for similar items in EconPapers)
Date: 2001-11
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_425_01

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