Active, or Passive? Revisiting the Role of Fiscal Policy in the Great Inﬂation
Stephanie Ettmeier and
No 1872, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research
We reexamine whether pre-Volcker U.S. ﬁscal policy was active or passive. To do so, we estimate a DSGE model with monetary and ﬁscal policy interactions employing a sequential Monte Carlo algorithm (SMC) for posterior evaluation. Unlike existing studies, we do not have to treat each policy regime as distinct, separately estimated, models. Rather, SMC enables us to estimate the DSGE model over its entire parameter space. A differentiated perspective results: pre-Volcker macroeconomic dynamics were similarly driven by a passive monetary/passive ﬁscal policy regime and ﬁscal dominance. Fiscal policy actions, especially government spending, were critical in the pre-Volcker inﬂation build-up.
Keywords: Bayesian Analysis; DSGE Models; Monetary-Fiscal Policy Interactions; Monte Carlo Methods (search for similar items in EconPapers)
JEL-codes: C11 C15 E63 E65 (search for similar items in EconPapers)
Pages: 75 p.
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1872
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