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Empirical Monetary-Fiscal Equivalence

Author

Listed:
  • Ulf Nielsson

    (Copenhagen Business School)

  • Jesper Rangvid

    (Copenhagen Business School)

  • Farzad Saidi

    (University of Bonn & CEPR)

  • Fabian Seyrich

    (Frankfurt School of Finance & Management & DIW Berlin)

  • Daniel Streitz

    (Halle Institute for Economic Research (IWH) & University of Jena)

Abstract

What stimulus payments replicate the consumption effect of a desired (but potentially infeasible) interest rate cut? Using granular full-population administrative data, we estimate consumption responses to interest rate changes via adjustable-rate mortgage resets and lump-sum cash windfalls from unanticipated inheritances. Combining them, we map a 1 percentage point monetary-policy rate decrease to equivalent uniform transfers of ~$1,000 per person paid over 5 years, totaling 1.3% of GDP. This estimate remains robust when accounting for heterogeneity in the cross-sectional incidence of these macro-equivalent policies. We find only modest heterogeneity in marginal propensities to consume, limiting efficiency gains from targeting transfers.

Suggested Citation

  • Ulf Nielsson & Jesper Rangvid & Farzad Saidi & Fabian Seyrich & Daniel Streitz, 2025. "Empirical Monetary-Fiscal Equivalence," ECONtribute Discussion Papers Series 367, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:367
    as

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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_367_2025.pdf
    File Function: First version, 2025
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    References listed on IDEAS

    as
    1. James H. Stock & Mark W. Watson, 2018. "Identification and Estimation of Dynamic Causal Effects in Macroeconomics Using External Instruments," Economic Journal, Royal Economic Society, vol. 128(610), pages 917-948, May.
    2. Goncalves, Silvia & Kilian, Lutz, 2004. "Bootstrapping autoregressions with conditional heteroskedasticity of unknown form," Journal of Econometrics, Elsevier, vol. 123(1), pages 89-120, November.
    3. Òscar Jordà, 2005. "Estimation and Inference of Impulse Responses by Local Projections," American Economic Review, American Economic Association, vol. 95(1), pages 161-182, March.
    4. Maurice Obstfeld & Alan M. Taylor, 1998. "The Great Depression as a Watershed: International Capital Mobility over the Long Run," NBER Chapters, in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 353-402, National Bureau of Economic Research, Inc.
    5. Mikkel Plagborg‐Møller & Christian K. Wolf, 2021. "Local Projections and VARs Estimate the Same Impulse Responses," Econometrica, Econometric Society, vol. 89(2), pages 955-980, March.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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