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The Interplay Between Fiscal and Monetary Policy: Implications for Economic Stability

In: Proceedings of the 2025 International Conference on Financial Risk and Investment Management (ICFRIM 2025)

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  • Zhicheng Wang

    (Northeastern University)

Abstract

Fiscal and monetary policy interactions are crucial for macroeconomic stability, particularly during crises. While fiscal policy influences aggregate demand through government spending and taxation, monetary policy controls inflation and economic activity via interest rate adjustments. Using econometric models, such as VAR and DSGE, this study examines the dynamic interplay between these policies, emphasizing temporal effects and alignment. Empirical evidence highlights that coordinated fiscal and monetary policies, such as during the 2008 financial crisis and COVID-19 pandemic, amplify economic outcomes but pose challenges like debt sustainability and inflation control. The findings suggest that policy alignment enhances GDP growth and minimizes inefficiencies, while misalignment exacerbates economic instability. Future research should explore nonlinear policy effects, cross-country comparisons, and the impact of technological advancements. The study underscores the importance of transparent frameworks and advanced analytics to optimize fiscal-monetary policy coordination. And to use different models and data sources to give a more detailed analysis of how this cross-section policy will affect the real-world economy.

Suggested Citation

  • Zhicheng Wang, 2025. "The Interplay Between Fiscal and Monetary Policy: Implications for Economic Stability," Advances in Economics, Business and Management Research, in: Maizaitulaidawati Md Husin (ed.), Proceedings of the 2025 International Conference on Financial Risk and Investment Management (ICFRIM 2025), pages 809-815, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-748-9_89
    DOI: 10.2991/978-94-6463-748-9_89
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