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What is the Importance of Monetary and Fiscal Shocks in Explaining US Macroeconomic Fluctuations?

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  • Barbara Rossi
  • Sarah Zubairy

Abstract

This paper analyzes the importance of monetary and fiscal policy shocks in explaining US macroeconomic fluctuations, and establishes new stylized facts. The novelty of our empirical analysis is that we jointly consider both monetary and fiscal policy, whereas the existing literature only focuses on either one or the other. Our main findings are twofold: fiscal shocks are relatively more important in explaining medium cycle fluctuations whereas monetary policy shocks are relatively more important in explaining business cycle fluctuations; and failing to recognize that both monetary and fiscal policy simultaneously affect macroeconomic variables might incorrectly attribute the fluctuations to the wrong source.

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Bibliographic Info

Paper provided by Duke University, Department of Economics in its series Working Papers with number 11-02.

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Length: 33
Date of creation: 2011
Date of revision:
Handle: RePEc:duk:dukeec:11-02

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Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
Phone: (919) 660-1800
Fax: (919) 684-8974
Web page: http://econ.duke.edu/

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Keywords: Monetary policy; government spending; fiscal policy; business cycle fluctuations; medium cycle;

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Cited by:
  1. Carlino, Gerald A. & Inman, Robert P., 2014. "Macro fiscal policy in economic unions: states as agents," Working Papers 14-20, Federal Reserve Bank of Philadelphia.
  2. Eric Sims & Ruediger Bachmann, 2011. "Confidence and the Transmission of Government Spending Shocks," 2011 Meeting Papers 83, Society for Economic Dynamics.
  3. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 1-50.
  4. Guglielmo Maria Caporale & Mauro Costantini & Antonio Paradiso, 2012. "Re-examining the Decline in the US Saving Rate: The Impact of Mortgage Equity Withdrawal," Discussion Papers of DIW Berlin 1232, DIW Berlin, German Institute for Economic Research.
  5. Alfred A.Haug & Tomasz Jędrzejowicz & Anna Sznajderska, 2013. "Combining monetary and fiscal policy in an SVAR for a small open economy," National Bank of Poland Working Papers 168, National Bank of Poland, Economic Institute.
  6. Daniel P. Murphy, 2013. "How does government spending stimulate consumption?," Globalization and Monetary Policy Institute Working Paper 157, Federal Reserve Bank of Dallas.
  7. 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.
  8. Anderson, Emily & Inoue, Atsushi & Rossi, Barbara, 2013. "Heterogeneous Consumers and Fiscal Policy Shocks," CEPR Discussion Papers 9631, C.E.P.R. Discussion Papers.
  9. Monacelli, Tommaso & Perotti, Roberto & Trigari, Antonella, 2010. "Unemployment fiscal multipliers," Journal of Monetary Economics, Elsevier, vol. 57(5), pages 531-553, July.

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