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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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Bibliographic Info

Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2002_13.

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Date of creation: Sep 2001
Date of revision: Oct 2002
Handle: RePEc:gla:glaewp:2002_13

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  15. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 2000. "Does Institutional Change Really Matter? Inflation Targets, Central Bank Reform and Interest Rate Policy in the OECD Countries," CESifo Working Paper Series 278, CESifo Group Munich.
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  20. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  21. Muscatelli, Anton & Trecroci, Carmine, 2000. " Monetary Policy Rules, Policy Preferences, and Uncertainty: Recent Empirical Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 14(5), pages 597-627, December.
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