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Monetary and fiscal policy interactions: Evidence from emerging European economies


  • Cevik, Emrah Ismail
  • Dibooglu, Sel
  • Kutan, Ali M.


This paper examines the interactions between fiscal and monetary policy for some former transition, emerging European economies over the 1995Q1–2010Q4 period by using a Markov regime-switching model. We consider the monetary policy rule proposed by Taylor (1993) and the fiscal policy rule suggested by Davig and Leeper (2007) in accounting for monetary and fiscal policy interactions. Empirical results suggest that monetary and fiscal policy rules exhibit switching properties between active and passive regimes and all countries followed both active and passive monetary policies. As for fiscal policy, the Czech Republic, Estonia, Hungary, and Slovenia seem to have alternated between active and passive fiscal regimes while fiscal policies of Poland and the Slovak Republic can be characterized by a single fiscal regime. Although the policy mix and the interactions between monetary and fiscal policy point a diverse picture in our sample countries, the monetary policy seems to be passive in all countries after 2000. This finding is consistent with the constraints imposed by European Union enlargement on monetary policy.

Suggested Citation

  • Cevik, Emrah Ismail & Dibooglu, Sel & Kutan, Ali M., 2014. "Monetary and fiscal policy interactions: Evidence from emerging European economies," Journal of Comparative Economics, Elsevier, vol. 42(4), pages 1079-1091.
  • Handle: RePEc:eee:jcecon:v:42:y:2014:i:4:p:1079-1091 DOI: 10.1016/j.jce.2014.05.001

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    References listed on IDEAS

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    Cited by:

    1. Chuku Chuku & Paul Middleditch, 2016. "Characterizing monetary and fiscal policy rules and interactions when commodity prices matter," Centre for Growth and Business Cycle Research Discussion Paper Series 222, Economics, The Univeristy of Manchester.
    2. Perevyshin, Yuri, 2017. "Peculiarities of Interaction of Monetary and Fiscal Policy Under the Inflation Targeting Regime," Working Papers 031711, Russian Presidential Academy of National Economy and Public Administration.
    3. ADAM, Alexandra, 2015. "Approaches Of Public Finance Sustainability Taking Into Account The Current Economic Context," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 19(1), pages 93-101.
    4. Ricci-Risquete, Alejandro & Ramajo, Julián & de Castro, Francisco, 2016. "Do Spanish fiscal regimes follow the euro-area trends? Evidence from Markov-Switching fiscal rules," Economic Modelling, Elsevier, vol. 59(C), pages 484-494.
    5. RNuket Kirci Cevik & Sel Dibooglu & Ali M. Kutan, 2016. "Real and Financial Sector Studies in Central and Eastern Europe: A Review," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(1), pages 2-31, February.

    More about this item


    Monetary policy; Fiscal policy; Monetary-fiscal interactions; Time series models; Transition economies;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal 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
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies


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