EconPapers    
Economics at your fingertips  
 

Monetary-fiscal policy interactions: interdependent policy rule coefficients

Manuel González-Astudillo

No 2013-58, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In this paper, we formulate and solve a New Keynesian model with monetary and fiscal policy rules whose coefficients are time-varying and interdependent. We implement time variation in the policy rules by specifying coefficients that are logistic functions of correlated latent factors and propose a solution method that allows for these characteristics. The paper uses Bayesian methods to estimate the policy rules with time-varying coefficients, endogeneity, and stochastic volatility in a limited-information framework. Results show that monetary policy switches regime more frequently than fiscal policy, and that there is a non-negligible degree of interdependence between policies. Policy experiments reveal that contractionary monetary policy lowers inflation in the short run and increases it in the long run. Also, lump-sum taxes affect output and inflation, as the literature on the fiscal theory of the price level suggests, but the effects are attenuated with respect to a pure fiscal regime.

Date: 2013
New Economics Papers: this item is included in nep-cba, nep-lam, nep-ltv, nep-mac, nep-mon, nep-neu and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/2013/201358/201358abs.html (text/html)
http://www.federalreserve.gov/pubs/feds/2013/201358/201358pap.pdf (application/pdf)

Related works:
Working Paper: Monetary-Fiscal Policy Interactions: Interdependent Policy Rule Coefficients (2013) Downloads
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:fip:fedgfe:2013-58

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().

 
Page updated 2024-04-14
Handle: RePEc:fip:fedgfe:2013-58