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Empirical Evidence on the U.S. Monetary-Fiscal Policy Mix

Author

Listed:
  • Emiliano Carlevaro

    (School of Economics and Public Policy of Economics, University of Adelaide)

  • Qazi Haque

    (School of Economics and Public Policy of Economics, University of Adelaide)

  • Leandro Magnusson

    (Department of Economics, University of Western Australia)

Abstract

This paper revisits the U.S. fiscal-monetary policy mix using econometric methods that are robust to weak identification and sensitive to structural changes. We find that the pre-Volcker period was predominantly characterised by a passive monetary-passive fiscal regime, consistent with indeterminacy and the presence of self-fulfilling inflationary expectations. However, we cannot rule out the possibility of a passive monetary-active fiscal configuration during the 1960s and 1970s, in line with the Fiscal Theory of the Price Level. In contrast, the post-Volcker period exhibits strong evidence of an active monetary-passive fiscal regime, reflecting greater inflation control and fiscal discipline.

Suggested Citation

  • Emiliano Carlevaro & Qazi Haque & Leandro Magnusson, 2025. "Empirical Evidence on the U.S. Monetary-Fiscal Policy Mix," Economics Discussion / Working Papers 25-05, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:25-05
    Note: MD5 = de70c9be70562bd24346d0fe7f70f635
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    File URL: https://ecompapers.biz.uwa.edu.au/paper/PDF%20of%20Discussion%20Papers/2025/DP%2025.05_Carlevaro%20Haque%20and%20Magnusson.pdf
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    More about this item

    Keywords

    Fiscal-monetary interactions; weak identification;

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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