IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Monetary and Fiscal Policy Interactions in an Emerging Open Economy: A Non-Ricardian DSGE Approach

  • Aliya Algozhina

The monetary and fiscal policy interactions have gained a new research interest after the 2008 crisis due to the global increase of fiscal debt. This paper constructs a macroeconomic model of joint fiscal and monetary policy for an emerging open economy taking into account its structural uniqueness. In particular, the two instruments of monetary policy, interest rate and foreign exchange intervention, the two instruments of fiscal policy, public consumption and public investment, the two types of households, optimizers and rule-of- thumb individuals, and a foreign debt via collateral constraint are modeled here in a single DSGE framework. The parameters are calibrated for the case of Hungary using data over 1995Q1-2011Q3. The impulse response functions to public investment, public consumption, and interest rate shocks reveal some unconventional findings in favor of the fiscal theory of price level as opposed to the traditional monetarist doctrine

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by The Center for Economic Research and Graduate Education - Economics Institute, Prague in its series CERGE-EI Working Papers with number wp476.

in new window

Date of creation: Dec 2012
Date of revision:
Handle: RePEc:cer:papers:wp476
Contact details of provider: Postal: P.O. Box 882, Politickych veznu 7, 111 21 Praha 1
Phone: (+420) 224 005 123
Fax: (+420) 224 005 333
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Chadha, J.S. & Charles Nolan, 2002. "Optimal Simple Rules for the Conduct of Monetary and Fiscal Policy," Cambridge Working Papers in Economics 0224, Faculty of Economics, University of Cambridge.
  2. Enrique G. Mendoza, 2010. "Sudden Stops, Financial Crises, and Leverage," American Economic Review, American Economic Association, vol. 100(5), pages 1941-66, December.
  3. De Paoli, Bianca, 2009. "Monetary policy and welfare in a small open economy," Journal of International Economics, Elsevier, vol. 77(1), pages 11-22, February.
  4. Cogan, John F. & Cwik, Tobias J. & Taylor, John B. & Wieland, Volker, 2009. "New Keynesian versus old Keynesian government spending multipliers," CFS Working Paper Series 2009/17, Center for Financial Studies (CFS).
  5. Woodford, Michael, 2010. "Simple Analytics of the Government Expenditure Multiplier," CEPR Discussion Papers 7704, C.E.P.R. Discussion Papers.
  6. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
  7. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers 244, University of Rochester - Center for Economic Research (RCER).
  8. Lawrence J. Christiano & Martin Eichenbaum & Sergio Rebelo, 2010. "When is the government spending multiplier large?," FRB Atlanta CQER Working Paper No. 2010-01, Federal Reserve Bank of Atlanta.
  9. Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Closing Small Open Economy Models," Departmental Working Papers 200115, Rutgers University, Department of Economics.
  10. Gartner, Manfred, 1987. "Intervention Policy under Floating Exchange Rates: An Analysis of the Swiss Case," Economica, London School of Economics and Political Science, vol. 54(216), pages 439-53, November.
  11. Javier García-Cicco & Roberto Pancrazi & Martín Uribe, 2006. "Real Business Cycles in Emerging Countries?," NBER Working Papers 12629, National Bureau of Economic Research, Inc.
  12. Ester Faia & Eleni Iliopulos, 2010. "Financial Globalization, Financial Frictions and Optimal Monetary Policy," Documents de travail du Centre d'Economie de la Sorbonne 10053, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  13. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2005. "Sudden stops and output drops," Staff Report 353, Federal Reserve Bank of Minneapolis.
  14. Pierpaolo Benigno & Michael Woodford, 2004. "Optimal Monetary and Fiscal Policy: A Linear-Quadratic Approach," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 271-364 National Bureau of Economic Research, Inc.
  15. Francisco J. Buera & Benjamin Moll, 2012. "Aggregate Implications of a Credit Crunch," NBER Working Papers 17775, National Bureau of Economic Research, Inc.
  16. Schmitt-Grohé, Stephanie & Uribe, Martín, 2004. "Optimal Simple and Implementable Monetary and Fiscal Rules," CEPR Discussion Papers 4334, C.E.P.R. Discussion Papers.
  17. Douglas Laxton & Dirk Muir & Michael Kumhof & Susanna Mursula & Charles Freedman, 2009. "Fiscal Stimulus to the Rescue? Short-Run Benefits and Potential Long-Run Costs of Fiscal Deficits," IMF Working Papers 09/255, International Monetary Fund.
  18. Campbell Leith & Simon Wren‐Lewis, 2013. "Fiscal Sustainability in a New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(8), pages 1477-1516, December.
  19. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  20. Douglas Laxton & Susanna Mursula & Michael Kumhof & Dirk Muir, 2010. "The Global Integrated Monetary and Fiscal Model (GIMF) – Theoretical Structure," IMF Working Papers 10/34, International Monetary Fund.
  21. Eric M. Leeper, 2013. "Fiscal Limits and Monetary Policy," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 13(2), pages 33-58.
  22. Martin Fukac & Adrian Pagan, 2010. "Limited information estimation and evaluation of DSGE models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 55-70.
  23. Enrique G. Mendoza, 2006. "Lessons from the Debt-Deflation Theory of Sudden Stops," American Economic Review, American Economic Association, vol. 96(2), pages 411-416, May.
  24. Faia, Ester & Iliopulos, Eleni, 2011. "Financial openness, financial frictions and optimal monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 35(11), pages 1976-1996.
  25. Martin Fukac & Adrian Pagan, 2010. "Structural macro-econometric modelling in a policy environment," Research Working Paper RWP 10-08, Federal Reserve Bank of Kansas City.
  26. Luis Felipe Cespedes & Roberto Chang & Andres Velasco, 2000. "Balance Sheets and Exchange Rate Policy," NBER Working Papers 7840, National Bureau of Economic Research, Inc.
  27. Nobuhiro Kiyotaki & John Moore, 1995. "Credit Cycles," NBER Working Papers 5083, National Bureau of Economic Research, Inc.
  28. Nora Traum & Shu‐Chun S. Yang, 2015. "When Does Government Debt Crowd Out Investment?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(1), pages 24-45, 01.
  29. Tovar, Camilo Ernesto, 2008. "DSGE Models and Central Banks," Economics Discussion Papers 2008-30, Kiel Institute for the World Economy.
  30. Paul Castillo & Carlos Montoro & Vicente Tuesta, 2013. "An Estimated Stochastic General Equilibrium Model with Partial Dollarization: A Bayesian Approach," Open Economies Review, Springer, vol. 24(2), pages 217-265, April.
  31. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262013770, June.
  32. John H. Cochrane, 2010. "Understanding Policy in the Great Recession: Some Unpleasant Fiscal Arithmetic," NBER Working Papers 16087, National Bureau of Economic Research, Inc.
  33. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," NBER Working Papers 7571, National Bureau of Economic Research, Inc.
  34. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  35. Davig, Troy & Leeper, Eric M., 2009. "Monetary-Fiscal Policy Interactions and Fiscal Stimulus," CEPR Discussion Papers 7509, C.E.P.R. Discussion Papers.
  36. Olivier J. Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," IMF Staff Position Notes 2010/03, International Monetary Fund.
  37. Michal Andrle & Tibor Hledik & Ondra Kamenik & Jan Vlcek, 2009. "Implementing the New Structural Model of the Czech National Bank," Working Papers 2009/2, Czech National Bank, Research Department.
  38. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
  39. Juraj Zeman & Matus Senaj, 2009. "DSGE Model-Slovakia," Working and Discussion Papers WP 3/2009, Research Department, National Bank of Slovakia.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cer:papers:wp476. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jana Koudelkova)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.