US Monetary and Fiscal Policies - Conflict or Cooperation?

Xiaoshan Chen, Eric Leeper and Campbell Leith

No 2015-77, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: Most of the literature estimating DSGE models for monetary policy analysis ignores fiscal policy and assumes that monetary policy follows a simple rule. In this paper we allow both fiscal and monetary policy to be described by rules and/or optimal policy which are subject to switches over time. We find that US monetary and fiscal policy have often been in conflict, and that it is relatively rare that we observe the benign policy combination of an conservative monetary policy paired with a debt stabilizing fiscal policy. In a series of counterfactuals, a conservative central bank following a time-consistent fiscal policy leader would come close to mimicking the cooperative Ramsey policy. However, if policy makers cannot credibly commit to such a regime, monetary accommodation of the prevailing fiscal regime may actually be welfare improving.

Keywords: Bayesian Estimation; interest rate rules; fiscal policy rules; optimal monetary policy; optimal fiscal policy; great moderation; commitment; discretion (search for similar items in EconPapers)
Date: 2015-06-29
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://hdl.handle.net/10943/685
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Working Paper: U.S. Monetary and Fiscal Policies - Conflict or Cooperation? (2019)
Working Paper: US Monetary and Fiscal Policies - conflict or cooperation? (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:685

Access Statistics for this paper

More papers in SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE) 31 Buccleuch Place, EH8 9JT, Edinburgh. Contact information at EDIRC.
Bibliographic data for series maintained by Research Office ().