Fiscal and Monetary Policy Interactions: Empirical Evidence and Optimal Policy Using a Structural New Keynesian Model

Vito Muscatelli, Patrizio Tirelli and Carmine Trecroci

No 1060, CESifo Working Paper Series from CESifo

Abstract: This paper examines the interaction of monetary and fiscal policies using an estimated New Keynesian dynamic general equilibrium model for the US. In contrast to earlier work using VAR models, we show that the strategic complementarity or substitutability of fiscal and monetary policy depends crucially on the types of shocks hitting the economy, and on the assumptions made about the underlying structural model. We also demonstrate that countercyclical fiscal policy can be welfare-reducing if fiscal and monetary policy rules are inertial and not co-ordinated.

Date: 2003
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (4)

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Journal Article: Fiscal and monetary policy interactions: Empirical evidence and optimal policy using a structural New-Keynesian model (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1060

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