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Fiscal and Monetary Policy: Coordination or Conflict?

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ABSTRACT This paper examines the interaction between monetary and fiscal policies. Using annual panel data covering the period from 1991 to 2016 for 42 countries, it characterizes the cyclical behavior… Click to show full abstract

ABSTRACT This paper examines the interaction between monetary and fiscal policies. Using annual panel data covering the period from 1991 to 2016 for 42 countries, it characterizes the cyclical behavior of monetary and fiscal policy, distinguishing countries by institutional characteristics and policy frameworks. It also applies heterogeneous structural panel VAR methodology to quarterly data from a subset of these countries to assess the response to aggregate demand shocks. The main finding is that central bank independence and inflation targeting are associated with more countercyclical monetary and fiscal policies and an increased degree of coordination between the two.

Keywords: monetary fiscal; policy; coordination; policy coordination; monetary policy; fiscal monetary

Journal Title: International Economic Journal
Year Published: 2018

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