Phase-Dependent Monetary and Fiscal Policy

This paper studies how the effects of monetary and fiscal policy vary depending on the business cycle phase. It shows that in a medium-scale DSGE model, estimated on US data, monetary policy has a stronger impact on the economy in downturns and booms. The latter is also valid for labor and capital income taxes. Government expenditure shocks and consumption tax shocks, on the contrary, have stronger impact on output in depressions and recoveries. The paper also shows that accounting for the source of business cycle fluctuations is potentially important when assessing state-dependence in policy transmission