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Monetary and budgetary policy interaction: an SVAR analysis of stabilisation policies in monetary union

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  • Peter CLAEYS

Abstract

This paper examines the interaction between monetary and budgetary policy. A comparison of the dynamic responses in di.erent exchange rate regimes offers an assessment of the monetary union case. The analysis proceeds on an SVAR-common trends model. In its current specification, we can only infer responses to the budgetary policy shock. Its identification is obtained by imposing a (long term) solvency condition on government accounts, exploiting automatic stabilisation responses of government revenues, and the imposition of the Fisher relationship. Two main conclusions emerge. Budgetary policy shocks indirectly lead to monetary tightening. Such effects are significant in countries with flexible exchange rate regimes only. Second, policy regime shifts are important.

Suggested Citation

  • Peter CLAEYS, 2004. "Monetary and budgetary policy interaction: an SVAR analysis of stabilisation policies in monetary union," Economics Working Papers ECO2004/22, European University Institute.
    • Handle: RePEc:eui:euiwps:eco2004/22
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    Citations

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    Cited by:

    1. Roel Beetsma & Massimo Giuliodori & Franc Klaassen, 2006. "Trade spill-overs of fiscal policy in the European Union: a panel analysis [‘Fiscal policy, profits, and investment’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 21(48), pages 640-687.
    2. Roel Beetsma & Massimo Giuliodori & Franc Klaassen, 2006. "Trade spill-overs of fiscal policy in the European Union: a panel analysis [‘Fiscal policy, profits, and investment’]," Economic Policy, CEPR;CES;MSH, vol. 21(48), pages 640-687.
    3. Chang, Yoosoon & Kwak, Boreum, 2017. "U.S. monetary-fiscal regime changes in the presence of endogenous feedback in policy rules," IWH Discussion Papers 15/2017, Halle Institute for Economic Research (IWH).
    4. Muhammad Ali Nasir & Junjie Wu & Milton Yago & Alaa M. Soliman, 2016. "Macroeconomic policy interaction: State dependency and implications for financial stability in UK: A systemic review," Cogent Business & Management, Taylor & Francis Journals, vol. 3(1), pages 1154283-115, December.
    5. Chang, Yoosoon & Kwak, Boreum & Qiu, Shi, 2021. "U.S. monetary and fiscal policy regime changes and their interactions," IWH Discussion Papers 12/2021, Halle Institute for Economic Research (IWH).
    6. Ricci-Risquete, Alejandro & Ramajo, Julián, 2015. "The effects of fiscal policy on the Spanish economy: Keynesian or non-Keynesian behavior?," Journal of Policy Modeling, Elsevier, vol. 37(6), pages 1019-1048.

    More about this item

    Keywords

    SVAR; fiscal policy; monetary policy; policy interaction;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • 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; Treasury Policy

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