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Tracking Monetary-Fiscal Interactions Across Time and Space

Author

Listed:
  • Michal Franta
  • Jan Libich
  • Petr Stehlik

Abstract

The fiscal position of many countries is worrying - and getting worse. Should formally independent central bankers be concerned about observed fiscal excesses spilling over to monetary policy and jeopardizing price stability? To provide some insights, this paper tracks the interactions between fiscal and monetary policies in the data across time and space. It makes three main contributions. The first one is methodological: we combine two recent econometric procedures - time-varying parameter vector autoregression with sign restrictions identification - and discuss the advantages of this approach. The second contribution is positive: we show how monetary-fiscal interactions and other macroeconomic variables have changed over time in six industrial countries (Australia, Canada, Japan, Switzerland, the UK, and the U.S.). The third contribution is normative: the paper highlights the role of the institutional design of each posis and unpleasant monetarist arithmetic.

Suggested Citation

  • Michal Franta & Jan Libich & Petr Stehlik, 2012. "Tracking Monetary-Fiscal Interactions Across Time and Space," Working Papers 2012/06, Czech National Bank, Research Department.
  • Handle: RePEc:cnb:wpaper:2012/06
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    Cited by:

    1. Aleš Melecký & Martin Melecký, 2012. "Vliv makroekonomických šoků na dynamiku vládního dluhu: jak robustní je fiskální pozice České republiky?
      [The Impact of Macroeconomic Shocks on the Government Debt Dynamics: How Robust is the Fisca
      ," Politická ekonomie, University of Economics, Prague, vol. 2012(6), pages 723-742.
    2. Libich, Jan & Nguyen, Dat Thanh & Stehlík, Petr, 2015. "Monetary exit and fiscal spillovers," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 184-206.
    3. Andrew HUGHES HALLETT & Jan LIBICH & Petr STEHLÍK, 2014. "Monetary and Fiscal Policy Interaction with Various Degrees of Commitment," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(1), pages 2-29, February.

    More about this item

    Keywords

    Fiscal gap; monetary-fiscal interactions; sign restrictions; time-varying parameters VAR; unpleasant monetarist arithmetic.;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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