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Fiscal and Monetary Policy Interactions in a DSGE Model for the Romanian Economy

Author

Listed:
  • Alina BOBAŞU

    (Bucharest University of Economic Studies.)

  • Bogdan MURARAȘU

    (Bucharest University of Economic Studies.)

Abstract

n this paper, we analyze the fiscal and monetary policy interactions using a DSGE model for an open economy. The model is estimated for the Romanian economy using Bayesian techniques and several important simulations are provided to offer valuable answers to the issues : what are the effects of fiscal policy and whether the build-up of government debt matters for the medium-term sustainability of the economy. We find that the accommodative monetary policy plays a significant role in the effects the fiscal policy exerts on the real economic activity. Moreover, the initial public debt ratio matters in model-based simulations and an above 60 per cent public debt makes the economy more vulnerable when cushioning the adverse shocks.

Suggested Citation

  • Alina BOBAŞU & Bogdan MURARAȘU, 2021. "Fiscal and Monetary Policy Interactions in a DSGE Model for the Romanian Economy," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 5-21, June.
    • Handle: RePEc:rjr:romjef:v::y:2021:i:2:p:5-21
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    References listed on IDEAS

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    More about this item

    Keywords

    fiscal and monetary policy shocks; general equilibrium; fiscal multipliers; accomodative policy; public debt;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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