Gonzalez-Astudillo, Manuel (2013): Monetary-Fiscal Policy Interactions: Interdependent Policy Rule Coefficients.
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Abstract
In this paper, we formulate and solve a New Keynesian model with monetary and fiscal policy rules whose coefficients are time-varying and interdependent. We implement time variation in the policy rules by specifying coefficients that are logistic functions of correlated latent factors and propose a solution method that allows for these characteristics. The paper uses Bayesian methods to estimate the policy rules with time-varying coefficients, endogeneity, and stochastic volatility in a limited-information framework. Results show that monetary policy switches regime more frequently than fiscal policy, and that there is a non-negligible degree of interdependence between policies. Policy experiments reveal that contractionary monetary policy lowers inflation in the short run and increases it in the long run. Also, lump-sum taxes affect output and inflation, as the literature on the fiscal theory of the price level suggests, but the effects are attenuated with respect to a pure fiscal regime.
Item Type: | MPRA Paper |
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Original Title: | Monetary-Fiscal Policy Interactions: Interdependent Policy Rule Coefficients |
Language: | English |
Keywords: | Time-varying policy rule coefficients, monetary and fiscal policy interactions, nonlinear state-space models |
Subjects: | C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C11 - Bayesian Analysis: General C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy ; Stabilization ; Treasury Policy |
Item ID: | 50040 |
Depositing User: | Manuel González-Astudillo |
Date Deposited: | 24 Sep 2013 02:39 |
Last Modified: | 26 Sep 2019 11:17 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/50040 |