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

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.
Publication date: November 2010
ISBN: 9781455209439
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Inflation , Monetary and Fiscal and Monetary Policy Interactions , New Keynesian Models , Bayesian Estimation , inflation , monetary authority , nominal interest rate , monetary economics , Bayesian Analysis , Fiscal Policies and Behavior of Economic Agents: General

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