The Policy Mix in the US and EMU: Evidence from a SVAR Analysis

Antonio Afonso and Luís Gonçalves

No 2018/28, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: We use a SVAR approach to the effects of fiscal and monetary policies, as well as their interactions (policy mix) for the US and the Euro Area (EMU). Overall, our results show that these two cases are different from each other. First, while in the case of the US there is evidence of Keynesian monetary policy, the same is not true in the case of the EMU. Second, considering the effects of the global economic and financial crisis, there is evidence of non-Keynesian fiscal policy in the case of the EMU (expansionary fiscal consolidation), while it does not hold in the case of the US. Third, there is evidence supporting the traditional inverse relationship between monetary policy interest rates and inflation in the case of the US, whereas in the case of the EMU there is a price puzzle (frequent in SVAR studies). Fourth, the baseline model seems to be robust in the case of the US, when considering the effects of the economic and financial crisis 2007-2009, while the opposite holds in the case of the EMU. However, in both cases, the policies seem to act as complements. Another similarity appears when analysing the relationship between public spending and taxation, where there is evidence supporting a fiscal retrenchment.

Keywords: Fiscal Policy; Monetary Policy; Crisis; Unconventional Monetary Policy; US; EMU (search for similar items in EconPapers)
JEL-codes: E52 E61 E62 E63 H50 H60 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
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Related works:
Journal Article: The policy mix in the US and EMU: Evidence from a SVAR analysis (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp0282018

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