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The Fiscal Effects of Monetary Policy

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  • Momi Dahan

Abstract

This paper develops a simple framework to examine the budgetary implications of monetary policy measures. It further outlines, using this framework, the various channels of influence that tight monetary policy may have on the budget deficit. The cumulative effect might be quantitatively large although each effect might be small. Most of the effects tend to increase the budget deficit as result of tight monetary policy, but tight monetary policy causes a short-run decrease in the government debt. Thus, macroeconomic policy coordination should be considered.

Suggested Citation

  • Momi Dahan, 1998. "The Fiscal Effects of Monetary Policy," IMF Working Papers 1998/066, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1998/066
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    Citations

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    Cited by:

    1. Muhammad Farooq Arby & Muhammad Nadeem Hanif, 2010. "Monetary and Fiscal Policies Coordination: Pakistan’s Experience," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 6, pages 3-13.
    2. Daly, Hounaida & Smida, Mounir, 2013. "Interaction entre politique monétaire et politique budgétaire:Cas de la Grèce [Fiscal and Monetary Policy Interactions : The Greece Case]," MPRA Paper 45931, University Library of Munich, Germany.
    3. Bank for International Settlements, 2003. "Fiscal issues and central banking in emerging economies," BIS Papers, Bank for International Settlements, number 20.
    4. Ng'ang'a, William Irungu & Chevallier, Julien & Ndiritu, Simon Wagura, 2019. "Investigating fiscal and monetary policies coordination and public debt in Kenya: Evidence from regime-switching and self-exciting threshold autoregressive models," Economics Discussion Papers 2019-40, Kiel Institute for the World Economy (IfW Kiel).
    5. Sükrü Binay, 2003. "Some issues in fiscal policy and central banking: the case of Turkey," BIS Papers chapters, in: Bank for International Settlements (ed.), Fiscal issues and central banking in emerging economies, volume 20, pages 245-259, Bank for International Settlements.
    6. Damir Šehović, 2013. "General Aspects of Monetary and Fiscal Policy Coordination," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 2(3), pages 5-27.
    7. Daly, Hounaida & Smida, Mounir, 2013. "La coordination des politiques monétaire et budgétaire: Aperçu théorique [Coordination of monetary and fiscal policies: Theoretical Overview]," MPRA Paper 48020, University Library of Munich, Germany.
    8. Aviral Kumar Tiwari & A. P. Tiwari, 2011. "Fiscal Deficit and Inflation: An empirical analysis for India," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 14(42), pages 131-158, December.
    9. Daly, Hounaida & Smida, Mounir, 2014. "Fiscal Theory of Price Level," MPRA Paper 60142, University Library of Munich, Germany.
    10. Albert, Juan-Francisco & Gómez-Fernández, Nerea, 2018. "Monetary policy and the redistribution of net worth in the US," LSE Research Online Documents on Economics 91320, London School of Economics and Political Science, LSE Library.
    11. Kamal, Mona, 2010. "الإطار النظرى للتنسيق بين السياستين المالية والنقدية [The Theoretical Framework for the Coordination of Fiscal and Monetary Polices]," MPRA Paper 26856, University Library of Munich, Germany.
    12. Albert, Juan-Francisco & Peñalver, Antonio & Perez-Bernabeu, Alberto, 2020. "The effects of monetary policy on income and wealth inequality in the U.S. Exploring different channels," Structural Change and Economic Dynamics, Elsevier, vol. 55(C), pages 88-106.

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    Keywords

    WP; nominal exchange rate;

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