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Fiscal and Monetary Policy Interactions: Empirical Evidence and Optimal Policy Using a Structural New Keynesian Model

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Author Info
Anton Muscatelli ()
Patrizio Tirelli
Carmine Trecroci ()

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Abstract

This paper examines the interaction of monetary and fiscal policies using an estimated New Keynesian dynamic general equilibrium model for the US. In contrast to earlier work using VAR models, we show that the strategic complementarity or substitutability of fiscal and monetary policy depends crucially on the types of shocks hitting the economy, and on the assumptions made about the underlying structural model. We also demonstrate that countercyclical fiscal policy can be welfare-reducing if fiscal and monetary policy rules are inertial and not co-ordinated.

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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 1060.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1060

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Find related papers by JEL classification:
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bernhard Herz & Werner Roeger & Lukas Vogel, 2006. "Optimal Simple Rules for Fiscal Policy in a Monetary Union," Macroeconomics fiscalpolicy-herz-roeger-, Department of Economics, Economics I, Bayreuth University. [Downloadable!]
    Other versions:
  2. Carmine Trecroci & Matilde Vassalli, 2006. "Monetary policy regime shifts: new evidence from time-varying interest rate rules," Working Papers 0602, University of Brescia, Department of Economics. [Downloadable!]
  3. Tatiana Kirsanova & Simon Wren-Lewis, 2007. "Optimal fiscal feedback on debt in an economy with nominal rigidities," Working Paper 2007-26, Federal Reserve Bank of Atlanta. [Downloadable!]
    Other versions:
  4. Rui Henrique Alves & Óscar Afonso, 2006. "The “New” Stability and Growth Pact: More Flexible, Less Stupid?," FEP Working Papers 218, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
    Other versions:
  5. Moons C. & Garretsen H. & Van Aarle B. & Fornero J., 2007. "Monetary policy in the New-Keynesian model: An application to the Euro-Area," Working Papers 2007014, University of Antwerp, Faculty of Applied Economics. [Downloadable!]
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  6. Van Aarle B. & Garretsen H. & Moons C., 2007. "Accession to the Euro-Area: A Stylized Analysis Using a NK Model," Working Papers 2007015, University of Antwerp, Faculty of Applied Economics. [Downloadable!]
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