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Analyzing the Interaction of Monetary and Fiscal Policy: Does Fiscal Policy Play a Valuable Role in Stabilisation?

  • V. Anton Muscatelli
  • Patrizio Tirelli

This paper provides an overview of recent papers which use estimated New Keynesian models to study the extent to which fiscal policy can beused to stabilize the economy. We use a varietyof different New Keynesian models, estimated on data for both theUS and for theEuro area, and highlight the diverse transmission channelst hrough which fiscal policy acts in these models. Although we find that fiscal policy can provide a useful complement to monetary policy, especially in models where consumers have finite horizons, there are import limitations to the value added of fiscal policy

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2005_17.

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Date of creation: Jun 2004
Date of revision: Jun 2005
Handle: RePEc:gla:glaewp:2005_17
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