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Monetary and Fiscal Policy Interactions in the Post-War U.S

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  • Shu-Chun S. Yang
  • Nora Traum

Abstract

A New Keynesian model allowing for an active monetary and passive fiscal policy (AMPF) regime and a passive monetary and active fiscal policy (PMAF) regime is fit to various U.S. samples from 1955 to 2007. Data in the pre-Volcker periods strongly prefer an AMPF regime, but the estimation is not very informative about whether the inflation coefficient in the interest rate rule exceeds one in pre-Volcker samples. Also, whether a government spending increase yields positive consumption in a PMAF regime depends on price stickiness. An income tax cut can yield a negative labor response if monetary policy aggressively stabilizes output.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/243.

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Length: 46
Date of creation: 01 Nov 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/243

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Keywords: Data analysis; Economic models; inflation; monetary policy; monetary authority; nominal interest rate; monetary economics; price level; real interest rate; monetary policy rules; high inflation; rational expectations; inflation rate; monetary fund; monetary policy rule; inflation response; macroeconomic stability; monetary transmission; general price level; relative price; real output; optimal monetary policy; monetary transmission mechanism; inflation growth; monetary policies; persistent high inflation; low inflation; central bank; monetary policy regime; economic instability; real value;

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Cited by:
  1. Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, 2013. "The Effects of the Saving and Banking Glut on the U.S. Economy," NBER Chapters, in: NBER International Seminar on Macroeconomics 2013, pages 52-67 National Bureau of Economic Research, Inc.
  2. Woong Yong Park & Jae Won Lee & Saroj Bhattarai, 2012. "Policy Regimes, Policy Shifts, and U.S. Business Cycles," 2012 Meeting Papers 287, Society for Economic Dynamics.
  3. Daly, Hounaida & Smida, Mounir, 2013. "Interaction entre politique monétaire et politique budgétaire:Cas de la Grèce
    [Fiscal and Monetary Policy Interactions : The Greece Case]
    ," MPRA Paper 45931, University Library of Munich, Germany.
  4. Stefano Eusepi & Bruce Preston, 2013. "Fiscal foundations of inflation: imperfect knowledge," Staff Reports 649, Federal Reserve Bank of New York.
  5. Valerio Ercolani & João Valle e Azevedo, 2013. "The Output Effects of (Non-Separable) Government Consumption at the Zero Lower Bound," Working Papers w201310, Banco de Portugal, Economics and Research Department.
  6. Daly, Hounaida & Smida, Mounir, 2013. "La coordination des politiques monétaire et budgétaire: Aperçu théorique
    [Coordination of monetary and fiscal policies: Theoretical Overview]
    ," MPRA Paper 48066, University Library of Munich, Germany.
  7. Flotho, Stefanie, 2012. "Monetary and Fiscal Policy in a Monetary Union under the Zero Lower Bound constraint," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62028, Verein für Socialpolitik / German Economic Association.

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