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Tracking Monetary-Fiscal Interactions Across Time and Space

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  • Michal Franta
  • Jan Libich
  • Petr Stehlik

Abstract

The fiscal position of many countries is worrying - and getting worse. Should formally independent central bankers be concerned about observed fiscal excesses spilling over to monetary policy and jeopardizing price stability? To provide some insights, this paper tracks the interactions between fiscal and monetary policies in the data across time and space. It makes three main contributions. The first one is methodological: we combine two recent econometric procedures - time-varying parameter vector autoregression with sign restrictions identification - and discuss the advantages of this approach. The second contribution is positive: we show how monetary-fiscal interactions and other macroeconomic variables have changed over time in six industrial countries (Australia, Canada, Japan, Switzerland, the UK, and the U.S.). The third contribution is normative: the paper highlights the role of the institutional design of each posis and unpleasant monetarist arithmetic.

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Bibliographic Info

Paper provided by Czech National Bank, Research Department in its series Working Papers with number 2012/06.

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Date of creation: Jun 2012
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Handle: RePEc:cnb:wpaper:2012/06

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Keywords: Fiscal gap; monetary-fiscal interactions; sign restrictions; time-varying parameters VAR; unpleasant monetarist arithmetic.;

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References

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Cited by:
  1. Melecky, Ales & Melecky, Martin, 2012. "Vliv makroekonomických šoků na dynamiku vládního dluhu: jak robustní je fiskální pozice České republiky?
    [The Impact of Macroeconomic Shocks on the Government Debt Dynamics: How Robust is
    ," MPRA Paper 39761, University Library of Munich, Germany.

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