Jointly identifying the effects of both fiscal and monetary policy shocks in an open economy structural VAR poses identification challenges. The innovations in this paper are to combine the methods of identification via sign restrictions, cointegration and traditional exclusion restrictions within a system which explicitly accounts for both stationary and non-stationary variables. This incorpor...

The interaction between fiscal and monetary policy is analyzed by means of a game theoretical approach. The coordination between those two policies is essential, since decisions taken by one institution may have disastrous effects on the other one, resulting in welfare loss for the society. We derived optimal monetary and fiscal policies in context of three coordination schemes: when each insti...

This paper revisits the traditional hierarchy of macroeconomic stabilization tools outside of the zero lower bound. In the benchmark New-Keynesian model monetary policy is always preferred to fiscal policy because fiscal policy has relative costs without delivering any relative benefits. I explore the robustness of this standard “monetary supremacy” result in three steps. First, motivated by em...

In a passive monetary and active fiscal policy regime, changes in the value of public debt generate wealth effects on households. Then, in contrast to the active monetary and passive fiscal policy regime, inflation moves oppositely from the inflation target and a stronger reaction of interest rates to inflation increases the response of inflation to shocks. Moreover, a higher level of public de...

Most analyses of monetary policy delegation schemes typically ignore the behavior of the fiscal policy maker. The paper investigates how monetary price level targeting or monetary nominal income targeting may yield social gain in an economy with government debt and where the fiscal policymaker, acting strategically, may take counter actions. We argue that the choice of fiscal policy instrument ...

In an open economy with a floaLing exchange rate, the efficacy of fiscal and monetary policy depends fundamentally on the wage-setting pnxiess. In the canonical models of Mundell and Fleming, monetary expansion raises output via an exchange rate depreciation, while fiscal expansion has no output effect. These results hold only when real wages can be altered by exchange rate movements; if the re...

in this study, a macro-economic model consisting of twelve behavioral equations and fourteen identity equations was estimated with the aim of investigating the effectiveness of monetary and fiscal policies set out in the fourth and fifth development plans. in the estimated model, the variables of development expenditures, current expenditures and tax revenues are used as fiscal policy tools and...

We study discretionary non-cooperative monetary and fiscal policy stabilization in the New Keynesian model, where the fiscal authority uses distortionary taxes as policy instrument. We explicitly model different frequencies of fiscal and monetary policy operations. We find that standard models of monetary and fiscal policy interactions may substantially overestimate the social gain from the sta...

Using a flexible semiparametric varying coefficient model specification, this paper examines the role of fiscal policy on the U.S. asset markets (stocks, corporate and treasury bonds). We consider two possible roles of fiscal deficits (or surpluses): as a separate direct information variable and as a (indirect) conditioning information variable indicating binding constraints on monetary policy ...