Policy Mix and Debt Sustainability: Evidence from Fiscal Policy Rules

Peter Claeys

No 1406, CESifo Working Paper Series from CESifo

Abstract: This paper characterises rules-based fiscal policy setting. Basically, we translate a standard monetary policy rule into a simple fiscal policy rule. We then infer on fiscal policymakers' reaction coefficients by testing the rule with GMM. Interaction is also tested directly by the inclusion of monetary policy setting. Our results qualify existing evidence on systematic fiscal policy in two respects. First, fiscal policy usually stabilises public debt. And there is indeed substantial interaction between fiscal and monetary policy via the debt channel. Second, sustainability is achieved with a “stop-go” cycle of consolidation. Consolidation does not come at the cost of less cyclical stabilisation unless debt ratios are high.

Keywords: monetary policy; fiscal policy; policy interaction and policy rules; debt sustainability (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Related works:
Journal Article: Policy mix and debt sustainability: evidence from fiscal policy rules (2006)
Working Paper: Policy mix and debt sustainability: evidence from fiscal policy rules (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1406

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