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Strategic Monetary and Fiscal Policy Interactions: An Empirical Investigation

  • Matteo Fragetta

    (University of Salerno)

  • Tatiana Kirsanova

    (Department of Economics, University of Exeter)

This paper identifies leadership regimes in monetary-fiscal policy interactions in three countries, the UK, the US and Sweden. We specify a small-scale, structural general equilibrium model of an open economy and estimate it using Bayesian methods. We assume that the authorities can act strategically in a non-cooperative policy game, and compare different leadership regimes. We find that the model of fiscal leadership gives the best fit for the UK and Sweden, while in the US the Nash or non-strategic regime dominates.

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP0706.pdf
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Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0706.

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Date of creation: 2007
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Handle: RePEc:exe:wpaper:0706
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  27. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models—Rejoinder," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 211-219.
  28. Carlo Favero & Tommaso Monacelli, 2005. "Fiscal Policy Rules and Regime (In)Stability: Evidence from the U.S," Working Papers 282, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  29. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
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