Monetary and Fiscal Policy Interactions in the Post-war U.S
November 1, 2010
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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.
Subject: Expenditure, Fiscal policy, Income tax systems, Inflation, Labor
Keywords: government spending, monetary policy, nominal interest rate, WP
Pages:
46
Volume:
2010
DOI:
Issue:
243
Series:
Working Paper No. 2010/243
Stock No:
WPIEA2010243
ISBN:
9781455209439
ISSN:
1018-5941
