Monetary-fiscal policy interactions: interdependent policy rule coefficients
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.
Year of publication: |
2013
|
---|---|
Authors: | Gonzalez-Astudillo, Manuel |
Institutions: | Federal Reserve Board (Board of Governors of the Federal Reserve System) |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Gonzalez-Astudillo, Manuel, (2014)
-
GONZALEZ-ASTUDILLO, MANUEL, (2018)
-
Gonzalez-Astudillo, Manuel, (2014)
- More ...