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Monetary/fiscal policy dominance and conflicts: Evidence from crises

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  • Giuli, Francesco
  • Ionta, Serena
  • Patella, Valeria

Abstract

We estimate a system of fiscal and monetary policy rules with Markov-switching interaction regimes to study policy coordination and conflict in the United States and the Euro Area during the Global Financial Crisis and the COVID-19 crisis. In the United States, we find shifts between policy coordination regimes, with both crises occurring under fiscal dominance. In contrast, the Euro Area displays persistent monetary dominance, despite temporary crisis-induced deviations. A country-level analysis shows that Germany follows the aggregate Euro Area pattern, while France and Italy exhibit policy conflict regimes, reflecting heterogeneity within the monetary union.

Suggested Citation

  • Giuli, Francesco & Ionta, Serena & Patella, Valeria, 2025. "Monetary/fiscal policy dominance and conflicts: Evidence from crises," Economics Letters, Elsevier, vol. 257(C).
    • Handle: RePEc:eee:ecolet:v:257:y:2025:i:c:s0165176525005506
    DOI: 10.1016/j.econlet.2025.112713
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • 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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