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

Author/Editor:

Susan S. Yang ; Nora Traum

Publication Date:

November 1, 2010

Electronic Access:

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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. 2010/243

Subject:

Expenditure Fiscal policy Income tax systems Inflation Labor

English

Publication Date:

November 1, 2010

ISBN/ISSN:

9781455209439/1018-5941

Stock No:

WPIEA2010243

Pages:

46

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