The Fiscal Effects of Monetary Policy

IMF Working Papers, May 1, 1998

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The Fiscal Effects of Monetary Policy

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Bibliographic details

• Authors: Momi Dahan
• Published: May 1, 1998
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451962185.001

Summary and main findings

• The paper develops a simple framework to examine the budgetary implications of monetary policy measures.
• Using this framework, it outlines 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 a result of tight monetary policy.
• Tight monetary policy causes a short-run decrease in the government debt.
• Conclusion: macroeconomic policy coordination should be considered.

Framework and channels of influence

• Presents a simple analytical framework to link monetary policy measures to budgetary outcomes.
• Identifies multiple channels through which tight monetary policy can affect the budget deficit (channels are described qualitatively in the source summary).

Quantitative implications and interpretation

• Emphasizes that while individual effects may be small, their cumulative impact on the budget deficit might be quantitatively large.
• Notes a distinction between short-run and deficit/debt dynamics: tight monetary policy tends to increase the budget deficit but leads to a short-run decrease in government debt.

Policy recommendations and implications

• Recommends considering macroeconomic policy coordination given the opposing short-run and deficit effects of tight monetary policy.
• Implies that fiscal authorities should account for monetary policy–induced changes in deficit trajectories when planning budget and debt management.

Publication and metadata

• Author: Momi Dahan
• Date: May 1, 1998
• Series: Working Paper No. 1998/066
• Issue: 066
• Volume: 1998
• Pages: 19
• DOI: https://doi.org/10.5089/9781451962185.001
• Stock No: WPIEA0661998
• ISBN: 9781451962185
• ISSN: 1018-5941
• Subject: Budget planning and preparation, Government debt management, Monetary aggregates, Monetary tightening, Public debt
• Keywords: nominal exchange rate, WP

IMF Working Papers — "The Fiscal Effects of Monetary Policy" (Momi Dahan), May 1, 1998.

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• The Fiscal Effects of Monetary Policy - WP/98/66
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