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Monetary and Fiscal Policy Interactions over the Cycle: Some Empirical Evidence

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  • Anton Muscatelli
  • Patrizio Tirelli
  • Carmine Trecroci

Abstract

This paper estimates VAR models to examine the response of monetary and fiscal policy to macroeconomic targets, and the interdependence between the two policy instruments. The models are estimated for a number of G7 countries. Our findings show that, whilst monetary and fiscal policy are increasingly used as strategic complements, the responsiveness of fiscal policy to the business cycle has decreased since the 1980s. We also demonstrate that shifts in the strategic interdependence between fiscal and monetary policy can be captured using Bayesian VAR models.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2002/wp-cesifo-2002-12/cesifo_wp817.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 817.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_817

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  10. Canzoneri, Matthew B & Cumby, Robert & Diba, Behzad, 1998. "Is the Price Level Determined by the Needs of Fiscal Solvency?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1772, C.E.P.R. Discussion Papers.
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  19. Dixit, Avinash & Lambertini, Luisa, 2001. "Monetary-fiscal policy interactions and commitment versus discretion in a monetary union," European Economic Review, Elsevier, Elsevier, vol. 45(4-6), pages 977-987, May.
  20. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 13(26), pages 65-113, 04.
  21. Mélitz, Jacques, 1997. "Some Cross-Country Evidence about Debt, Deficits and the Behaviour of Monetary and Fiscal Authorities," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1653, C.E.P.R. Discussion Papers.
  22. Leith, Campbell & Wren-Lewis, Simon, 2000. "Interactions between Monetary and Fiscal Policy Rules," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(462), pages C93-108, March.
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