EconPapers    
Economics at your fingertips  
 

Monetary-Fiscal Policy Interaction and Fiscal Inflation: A Tale of Three Countries

Martin Kliem (), Alexander Kriwoluzky and Samad Sarferaz ()

No 17/2015, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: We study the impact of the interaction between fiscal and monetary policy on the low-frequency relationship between the fiscal stance and inflation using cross-country data from 1965 to 1999. In a first step, we contrast the monetary-fiscal narrative for Germany, the U.S. and Italy with evidence obtained from simple regression models and a time-varying VAR. We find that the low-frequency relationship between the fiscal stance and inflation is low during periods of an independent central bank and responsible fiscal policy and more pronounced in times of high fiscal budget deficits and accommodative monetary authorities. In a second step, we use an estimated DSGE model to interpret the low-frequency measure structurally and to illustrate the mechanisms through which fiscal actions affect inflation in the long run. The findings from the DSGE model suggest that switches in the monetary-fiscal policy interaction and accompanying variations in the propagation of structural shocks can well account for changes in the low-frequency relationship between the fiscal stance and inflation.

Keywords: time-varying VAR; inflation; public deficits (search for similar items in EconPapers)
JEL-codes: E42 E58 E61 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/122309/1/839995261.pdf (application/pdf)

Related works:
Journal Article: Monetary–fiscal policy interaction and fiscal inflation: A tale of three countries (2016) Downloads
Working Paper: Monetary-fiscal policy interaction and fiscal inflation: a tale of three countries (2015) Downloads
Working Paper: Monetary-fiscal policy interaction and fiscal inflation: A tale of three countries (2015) 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:zbw:iwhdps:iwh-17-15

Access Statistics for this paper

More papers in IWH Discussion Papers from Halle Institute for Economic Research (IWH) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().

 
Page updated 2021-10-07
Handle: RePEc:zbw:iwhdps:iwh-17-15