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Assessing the effects of monetary and fiscal policy

Author

Listed:
  • Stefano Neri

    () (Banca d'Italia)

Abstract

This paper has two objectives: the first is to jointly analyse monetary and fiscal policy with a structural VAR model, evaluate the dynamic impact of policy shocks on U.S. output and prices and the contributions of these two sources to fluctuations in these variables. The second objective is to investigate if and how the effects of monetary policy are altered by the inclusion of fiscal policy variables in a benchmark monetary VAR. It is found that both monetary policy and fiscal policy have small effects on output and the price level and that neither of these shocks are important sources of fluctuations in either variable. The magnitude of the responses of output and prices to a monetary policy shock and the contribution of these shocks are reduced significantly once fiscal policy is introduced.

Suggested Citation

  • Stefano Neri, 2001. "Assessing the effects of monetary and fiscal policy," Temi di discussione (Economic working papers) 425, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_425_01
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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2001/2001-0425/tema_425_01.pdf
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    References listed on IDEAS

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    1. cipollone piero, 2001. "Is the Italian Labour market segmented?," Temi di discussione (Economic working papers) 400, Bank of Italy, Economic Research and International Relations Area.
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    Cited by:

    1. Pablo Burriel & Francisco de Castro & Daniel Garrote & Esther Gordo & Joan Paredes & Javier J. Pérez, 2010. "Fiscal Policy Shocks in the Euro Area and the US: An Empirical Assessment," Fiscal Studies, Institute for Fiscal Studies, vol. 31(2), pages 251-285, June.
    2. Massimo Giuliodori & Roel Beetsma, 2005. "What are the Trade Spill-Overs from Fiscal Shocks in Europe? An Empirical Analysis**," De Economist, Springer, vol. 153(2), pages 167-197, June.
    3. Fabio Canova & Evi Pappa, 2006. "Does it Cost to be Virtuous? The Macroeconomic Effects of Fiscal Constraints," NBER Chapters,in: NBER International Seminar on Macroeconomics 2004, pages 327-370 National Bureau of Economic Research, Inc.
    4. Cimadomo, Jacopo & Bénassy-Quéré, Agnès, 2012. "Changing patterns of fiscal policy multipliers in Germany, the UK and the US," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 845-873.
    5. K. Peren Arin & Peter H. Helles & Murat Koyuncu & Otto F. M. Reich, 2016. "Should We Care About The Composition Of Tax-Based Stimulus Packages?," Contemporary Economic Policy, Western Economic Association International, vol. 34(3), pages 430-445, July.
    6. Fabio Canova & Evi Pappa, 2007. "Price Differentials in Monetary Unions: The Role of Fiscal Shocks," Economic Journal, Royal Economic Society, vol. 117(520), pages 713-737, April.
    7. Jerome Henry & Pablo Hernandez de Cos & Sandro Momigliano, 2004. "The short-term impact of government budgets on prices; evidence from macroeconometric models," Temi di discussione (Economic working papers) 523, Bank of Italy, Economic Research and International Relations Area.
    8. Canova, Fabio & Pappa, Evi, 2006. "The elusive costs and the immaterial gains of fiscal constraints," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1391-1414, September.
    9. Altissimo, Filippo & Gaiotti, Eugenio & Locarno, Alberto, 2005. "Is money informative? Evidence from a large model used for policy analysis," Economic Modelling, Elsevier, vol. 22(2), pages 285-304, March.
    10. Hernández de Cos, Pablo & de Castro Fernández, Francisco, 2006. "The economic effects of exogenous fiscal shocks in Spain: a SVAR approach," Working Paper Series 647, European Central Bank.
    11. repec:col:000107:015644 is not listed on IDEAS
    12. Amela HUBIC & Francisco DE CASTRO, "undated". "The Effects of Inflation on General Government Accounts," EcoMod2010 259600077, EcoMod.
    13. Dario Focarelli & Fabio Panetta, 2002. "Are Mergers Beneficial to Consumers? Evidence from the Market for Bank Deposits," Temi di discussione (Economic working papers) 448, Bank of Italy, Economic Research and International Relations Area.
    14. Henry, Jerome & Hernandez de Cos, Pablo & Momigliano, Sandro, 2008. "The impact of government budgets on prices: Evidence from macroeconometric models," Journal of Policy Modeling, Elsevier, vol. 30(1), pages 123-143.
    15. de Castro, Francisco & Hernández de Cos, Pablo, 2008. "The economic effects of fiscal policy: The case of Spain," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1005-1028, September.
    16. Carine Bouthevillain & John Caruana & Cristina Checherita & Jorge Cunha & Esther Gordo & Stephan Haroutunian & Geert Langenus & Amela Hubic & Bernhard Manzke & Javier J. Pérez & Pietro Tommasino, 2009. "Pros and cons of various fiscal measures to stimulate the economy," Economic Bulletin, Banco de España;Economic Bulletin Homepage, issue JUL, July.
    17. repec:bdr:ensayo:v:35:y:2017:i:83:p:161-187 is not listed on IDEAS
    18. Hernán Rincón & Diego Rodríguez & Jorge Toro & Santiago Téllez, 2017. "FISCO: modelo fiscal para Colombia," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 35(83), pages 161-187, Junio.
    19. Henry, Jérôme & Hernández de Cos, Pablo & Momigliano, Sandro, 2004. "The short-term impact of government budgets on prices: evidence from macroeconomic models," Working Paper Series 396, European Central Bank.
    20. Raffaella Basile & Bruno Chiarini & Elisabetta Marzano, 2011. "Can we Rely upon Fiscal Policy Estimates in Countries with Unreported Production of 15 Per Cent (or more) of GDP?," CESifo Working Paper Series 3521, CESifo Group Munich.
    21. Canova, Fabio & Pappa, Evi, 2003. "Price Dispersions in Monetary Unions: The Role of Fiscal Shocks," CEPR Discussion Papers 3746, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    fiscal policy; monetary policy; impulse responses; omitted variables;

    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
    • 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
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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