Monetary-Fiscal Policy Interactions and Indeterminacy in Postwar US Data
AbstractUsing a micro-founded model and a likelihood-based inference method, we show that while a passive monetary and passive fiscal policy regime prevailed in the U.S. before Paul Volcker's chairmanship at the Federal Reserve, an active monetary and passive fiscal policy regime prevailed after his appointment. Since both monetary and fiscal policies were passive pre-Volcker, equilibrium indeterminacy was a feature of the economy. Finally, pre-Volcker, the effects of unanticipated policy shifts were substantially different from those predicted by conventional monetary models: unanticipated increases in interest rates increased inflation and output, while unanticipated increases in lump-sum taxes decreased inflation and output.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 102 (2012)
Issue (Month): 3 (May)
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- Saroj Bhattarai & Jae Won Lee & Woong Yong Park, 2012.
"Inflation dynamics: the role of public debt and policy regimes,"
Globalization and Monetary Policy Institute Working Paper
124, Federal Reserve Bank of Dallas.
- Woong Yong Park & Jae Won Lee & Saroj Bhattarai, 2013. "Inflation Dynamics: The Role of Public Debt and Policy Regimes," 2013 Meeting Papers 359, Society for Economic Dynamics.
- Saroj Bhattarai & Jae Won Lee & Woong Yong Park, 2013. "Inflation Dynamics: The Role of Public Debt and Policy Regimes," CAMA Working Papers 2013-75, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Woong Yong Park & Jae Won Lee & Saroj Bhattarai, 2012.
"Policy Regimes, Policy Shifts, and U.S. Business Cycles,"
2012 Meeting Papers
287, Society for Economic Dynamics.
- Saroj Bhattarai & Jae Won Lee & Woong Yong Park, 2012. "Policy regimes, policy shifts, and U.S. business cycles," Globalization and Monetary Policy Institute Working Paper 109, Federal Reserve Bank of Dallas.
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