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Macroeconomic impacts of monetary and fiscal policy in the euro area in times of shifting policies: A SVAR approach

Author

Listed:
  • Rant, Vasja
  • Puc, Anja
  • Čok, Mitja
  • Verbič, Miroslav

Abstract

This paper analyses the impacts of monetary and fiscal policy of the euro area on output and inflation between 2005 and 2022 using a structural vector autoregressive (SVAR) approach. We employ three alternative indicators of monetary policy, alongside government spending and revenue as fiscal variables to estimate the effects across different subperiods. The findings reveal that monetary policy tightening produces a negative and delayed effect on both output and inflation, with the effects differing across alternative monetary policy indicators in terms of duration and magnitude. A fiscal revenue shock is found to be inflationary, whereas a fiscal spending shock initially has a negative effect on growth that later turns positive, but is short-lived. The effects of fiscal policy shocks are more substantial than the effects of monetary policy shocks. The results also suggest that the effects may differ across subperiods, depending on the nature and intensity of the policy shifts.

Suggested Citation

  • Rant, Vasja & Puc, Anja & Čok, Mitja & Verbič, Miroslav, 2024. "Macroeconomic impacts of monetary and fiscal policy in the euro area in times of shifting policies: A SVAR approach," Finance Research Letters, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:finlet:v:64:y:2024:i:c:s1544612324004367
    DOI: 10.1016/j.frl.2024.105406
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    More about this item

    Keywords

    Euro area; Macroeconomic impact; Fiscal policy; Monetary policy; Policy shifts; Unconventional policy; Financial crises; Covid-19; SVAR model;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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