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Strategic monetary and fiscal policy interactions: An empirical investigation

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  • Fragetta, Matteo
  • Kirsanova, Tatiana

Abstract

This paper identifies leadership regimes in monetary-fiscal policy interactions in three countries, the UK, the US and Sweden. We specify a small-scale, structural general equilibrium model of an open economy and estimate it using Bayesian methods. We assume that the authorities can act strategically in a non-cooperative policy game, and compare different leadership regimes. We find that the model of fiscal leadership gives the best fit for the UK and Sweden, while in the US the Nash or non-strategic regime dominates. We assess the extent to which policy maker preferences reflect microfounded social preferences.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 54 (2010)
Issue (Month): 7 (October)
Pages: 855-879

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Handle: RePEc:eee:eecrev:v:54:y:2010:i:7:p:855-879

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Keywords: Monetary and fiscal policy Leadership Macroeconomic stabilization Bayesian estimation Policy objectives;

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References

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Citations

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Cited by:
  1. Daly, Hounaida & Smida, Mounir, 2013. "La coordination des politiques monétaire et budgétaire: Aperçu théorique
    [Coordination of monetary and fiscal policies: Theoretical Overview]
    ," MPRA Paper 48020, University Library of Munich, Germany.
  2. Cem Cebi, 2011. "The Interaction between Monetary and Fiscal Policies in Turkey: An Estimated New Keynesian DSGE Model (Yeni Keynesyen Dinamik Stokastik Genel Denge Modeli Çerçevesinde Türkiye’de Para ve Maliye P," Working Papers 1104, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  3. Demirel, Ufuk Devrim, 2012. "The value of monetary policy commitment under imperfect fiscal credibility," Journal of Economic Dynamics and Control, Elsevier, vol. 36(6), pages 813-829.
  4. Tatiana Kirsanova & Stephanus le Roux, 2013. "Commitment vs. discretion in the UK: An empirical investigation of the monetary and fiscal policy regime," Working Papers 2013_07, Business School - Economics, University of Glasgow.
  5. Eddie Gerba & Klemens Hauzenberger, 2013. "Estimating US Fiscal and Monetary Interactions in a Time Varying VAR," Studies in Economics 1303, Department of Economics, University of Kent.
  6. Çebi, Cem, 2012. "The interaction between monetary and fiscal policies in Turkey: An estimated New Keynesian DSGE model," Economic Modelling, Elsevier, vol. 29(4), pages 1258-1267.
  7. Bai, Yuting & Kirsanova, Tatiana, 2013. "Infrequent Fiscal Stabilization," SIRE Discussion Papers 2013-17, Scottish Institute for Research in Economics (SIRE).
  8. Nicolaas Groenewold, 2012. "Australia and the GFC: Saved by Astute Fiscal Policy?," Economics Discussion / Working Papers 12-28, The University of Western Australia, Department of Economics.
  9. Eric Mayer & Nikolai Stähler, 2013. "The debt brake: business cycle and welfare consequences of Germany’s new fiscal policy rule," Empirica, Springer, vol. 40(1), pages 39-74, February.
  10. Daly, Hounaida & Smida, Mounir, 2013. "Interaction entre politique monétaire et politique budgétaire:Cas de la Grèce
    [Fiscal and Monetary Policy Interactions : The Greece Case]
    ," MPRA Paper 45931, University Library of Munich, Germany.

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