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A Structural VAR model is employed to investigate the effects of monetary and fiscal policy shocks on stock market performance in Germany, UK and the US. A significant number of past studies have concentrated their attention on th...
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A Structural VAR model is employed to investigate the effects of monetary and fiscal policy shocks on stock market performance in Germany, UK and the US. A significant number of past studies have concentrated their attention on the relationship between monetary policy and stock market performance, yet only few on the effects of fiscal policy on stock markets. Even more we know little, if any, on the effects of fiscal and monetary policies on stock market performance when the two policies interact. This study aims to fill this void. Our results show that both fiscal and monetary policies influence the stock market, via either direct or indirect channels. More importantly, we find evidence that the interaction between the two policies is very important in explaining stock market developments. Thus, investors and analysts in their effort to understand the relationship between macroeconomic policies and stock market performance should consider fiscal and monetary policies in tandem rather than in isolation.
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In this paper, the literature on the interaction between monetary and fiscal policies in a monetary union is surveyed. By adopting the concept of symbiosis as a starting point, the paper highlights the importance of uncertainty, p...
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In this paper, the literature on the interaction between monetary and fiscal policies in a monetary union is surveyed. By adopting the concept of symbiosis as a starting point, the paper highlights the importance of uncertainty, policy makers' preferences and targets. Then, the role of commitment to policy rules and coordination is addressed. The analysis also focuses on the importance of the data considered for the generation of the policy mix. As a final step, the paper discusses the main results in the literature on public debt management in a monetary union. All the reported theoretical results are then adopted to retrieve policy and institutional implications for the European Monetary Union.
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Yes, indeed; at least for macroeconomic policy interaction. We examine a Neo-Classical economy and provide the conditions for policy arrangements to successfully stabilize the economy when agents have either rational or adaptive e...
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Yes, indeed; at least for macroeconomic policy interaction. We examine a Neo-Classical economy and provide the conditions for policy arrangements to successfully stabilize the economy when agents have either rational or adaptive expectations. For a contemporaneous-data monetary policy rule, the monetarist solution is unique and stationary under a passive fiscal/active monetary policy regime if monetary policy appropriately incorporates expectational heterogeneity. In contrast, the active fiscal/passive monetary policy regime's fiscalist solution is prone to explosiveness due to empirically plausible expectational heterogeneity. Nevertheless, this can be a well-defined, rather orthodox equilibrium. For operational monetary policy rules, only the results for the fiscalist solution prevail. Moreover, our results are plausible from an adaptive learning viewpoint.
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We examine the interaction of monetary and fiscal policies in Indonesia from 1974Q2 to 2019Q1. Within a standard structural vector autoregression framework, we show that the reactions of the policy rules are consistent with theore...
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We examine the interaction of monetary and fiscal policies in Indonesia from 1974Q2 to 2019Q1. Within a standard structural vector autoregression framework, we show that the reactions of the policy rules are consistent with theoretical predictions. For instance, a contractionary monetary policy is trailed by a contractionary fiscal policy with lower government expenditure. We extend the analysis to evaluate the interaction of policy rules during active and passive regimes. We show that monetary and fiscal policies are not synchronized over the full sample period, suggesting structural and institutional rigidities, particularly in the past. Restricting the sample to a recent period, we find the policies are more harmonized. We attribute this to the recent joint policy coordination initiatives between the monetary and fiscal authorities.
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In this paper, we employ a block structured near-vector autorcgression in order to compare the reactions to euro area shocks in four new member states (Bulgaria, I lungary, Czech Republic and Romania) and in the old member states ...
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In this paper, we employ a block structured near-vector autorcgression in order to compare the reactions to euro area shocks in four new member states (Bulgaria, I lungary, Czech Republic and Romania) and in the old member states of the EU. The methodology adopted also allows us to study the effects of national economic policies and their reactions to national shocks in each new member state. Our analysis demonstrates that possible asymmetric effects of the ECB's monetary policy cannot be excluded and that the potential accession of the new member states may increase the level of fiscal indiscipline in the Eurozone.
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This paper examines the interactions between fiscal and monetary policy for some former transition, emerging European economies over the 1995Q1 -2010Q4 period by using a Markov regime-switching model. We consider the monetary poli...
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This paper examines the interactions between fiscal and monetary policy for some former transition, emerging European economies over the 1995Q1 -2010Q4 period by using a Markov regime-switching model. We consider the monetary policy rule proposed by Taylor (1993) and the fiscal policy rule suggested by Davig and Leeper (2007) in accounting for monetary and fiscal policy interactions. Empirical results suggest that monetary and fiscal policy rules exhibit switching properties between active and passive regimes and all countries followed both active and passive monetary policies. As for fiscal policy, the Czech Republic, Estonia, Hungary, and Slovenia seem to have alternated between active and passive fiscal regimes while fiscal policies of Poland and the Slovak Republic can be characterized by a single fiscal regime. Although the policy mix and the interactions between monetary and fiscal policy point a diverse picture in our sample countries, the monetary policy seems to be passive in all countries after 2000. This finding is consistent with the constraints imposed by European Union enlargement on monetary policy. Journal of Comparative Economics 42 (4) (2014) 1079-1091. Bulent Ecevit University, Turkey; University of Missouri, St. Louis, United States; Southern Illinois University Edwardsville, The William Davidson Institute, United States.
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Increases in government spending trigger substitution effects—both inter- and infratemporal—and a wealth effect. The ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior. Studies that...
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Increases in government spending trigger substitution effects—both inter- and infratemporal—and a wealth effect. The ultimate impacts on the economy hinge on current and expected monetary and fiscal policy behavior. Studies that impose active monetary policy and passive fiscal policy typically find that government consumption crowds out private consumption: higher future taxes create a strong negative wealth effect, while the active monetary response increases the real interest rate. This paper estimates Markov-switching policy rules for the United States and finds that monetary and fiscal policies fluctuate between active and passive behavior. When the estimated joint policy process is imposed on a conventional new Keynesian model, government spending generates positive consumption multipliers in some policy regimes and in simulated data in which all policy regimes are realized. The paper reports the model's predictions of the macroeconomic impacts of the American Recovery and Reinvestment Act'simplied path for government spending under alternative monetary-fiscal policy combinations.
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Why are monetary authorities not elected like fiscal authorities are? Advanced economies pair an elected fiscal authority with an independent monetary authority. Replicating the advanced economies' structure with authorities micro...
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Why are monetary authorities not elected like fiscal authorities are? Advanced economies pair an elected fiscal authority with an independent monetary authority. Replicating the advanced economies' structure with authorities microfounded by a political economy model shows that this structure is the solution to a constrained mechanism design problem that overcomes time inconsistency and results in the highest possible welfare. Goal and instrument independence, singly and in combination, are insufficient to minimize time inconsistency, though their combination is necessary.
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