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Monetary and Fiscal Policy Interactions over the Cycle: Some Empirical Evidence

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  • Anton Muscatelli
  • Patrizio Tirelli
  • Carmine Trecroci

Abstract

This paper estimates VAR models to examine the response of monetary and fiscal policy to macroeconomic targets, and the interdependence between the two policy instruments. The models are estimated for a number of G7 countries. Our findings show that, whilst monetary and fiscal policy are increasingly used as strategic complements, the responsiveness of fiscal policy to the business cycle has decreased since the 1980s. We also demonstrate that shifts in the strategic interdependence between fiscal and monetary policy can be captured using Bayesian VAR models.

Suggested Citation

  • Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 2001. "Monetary and Fiscal Policy Interactions over the Cycle: Some Empirical Evidence," Working Papers 2002_13, Business School - Economics, University of Glasgow, revised Oct 2002.
  • Handle: RePEc:gla:glaewp:2002_13
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