Monetary and fiscal policy interactions: national and international empirical evidence

HB Economic Theory

Assadi, Marzieh ; Byrne, Joseph

University:University of Glasgow

Department:Adam Smith Business School

关键词: Conventional monetary policy, unconventional monetary policy, Ricardian equivalence, the fiscal theory of the price level, monetary and fiscal policy interactions, time-varying parameter factor-augmented VAR, global VAR.;   

Others  :  http://theses.gla.ac.uk/6796/1/2015assadiphd.pdf.pdf

来源: University of Glasgow

【 摘 要 】

This thesis is comprised of six Chapters on US Conventional and Unconventional Monetary Policy and their interaction with fiscal policy, both domestically and internationally. Chapter 1 introduces the main themes of the thesis. Chapter 2 studies the theoretical background of the thesis. After setting out key themes and the theoretical background in the introductory Chapters, the first core Chapter, i.e. thesis Chapter 3, examines the interaction between fiscal and monetary policy. Price puzzles are a repeated feature of empirical VAR models studying the effect of monetary policy. These price puzzles are often believed to appear due to the lack of information. However, we show that whether monetary and fiscal policy are active or passive influences the appearance of the price puzzle. This is because an active fiscal policy and a passive monetary policy can encourage private expenditure through a positive wealth channel. An active fiscal policy means fiscal authorities set expenditure regardless of tax revenues, while a passive monetary policy refers to a weak response of the policy interest rate to inflation. Finally, we find evidence in this Chapter that fiscal policy stimulates economic activity, i.e. it is non-Ricardian. Chapter 4 examines the effect of monetary and fiscal policy interactions in an international context. In particular, it considers the international spillovers of US monetary policy, whilst account for fiscal policy. This Chapter shows that US government debt influences the duration of the responses to a monetary contraction. Furthermore, it is shown that an increase in US government debt influences both the short and long-term interest rates, inflation, and output in the Euro Area and UK. This is through a positive wealth effect. In addition, the results of Persistence Profiles test, i.e. how fast we converge upon equilibrium following a shock, suggest that accounting for US government debt delays the return to equilibrium following monetary policy shocks. This may be due to the impact of fiscal policy on inflation and its persistence. Chapter 5 studies Unconventional Monetary Policy (UMP). It is shown that UMP increases output and inflation in the US, and generates spillovers to the Euro Area and UK. Furthermore, we present evidence that the portfolio balance is the transmission channel of UMP. That is UMP contributes to lowering the bound yields while it increases the price of assets. Chapter 6 concludes and summarizes the thesis, and provides a discussion of policy implications.