Monetary and Fiscal Policy Interactions in the Post-war U.S.

Author/Editor: Traum, Nora ; Yang, Shu-Chun S.
Publication Date: November 01, 2010
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: A New Keynesian model allowing for an active monetary and passive fiscal policy (AMPF) regime and a passive monetary and active fiscal policy (PMAF) regime is fit to various U.S. samples from 1955 to 2007. Data in the pre-Volcker periods strongly prefer an AMPF regime, but the estimation is not very informative about whether the inflation coefficient in the interest rate rule exceeds one in pre-Volcker samples. Also, whether a government spending increase yields positive consumption in a PMAF regime depends on price stickiness. An income tax cut can yield a negative labor response if monetary policy aggressively stabilizes output.
Series: Working Paper No. 10/243
Subject(s): Data analysis | Economic models | Fiscal policy | Monetary policy | United States

Author's Keyword(s): Monetary and Fiscal and Monetary Policy Interactions | New Keynesian Models | Bayesian Estimation
Publication Date: November 01, 2010
Format: Paper
Stock No: WPIEA2010243 Pages: 46
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