This paper examines the interaction of monetary and fiscal policies using an estimated New Keynesian dynamic general equilibrium model for the US. In contrast to earlier work using VAR models, we show that the strategic complementarity or substitutability of fiscal and monetary policy depends crucially on the types of shocks hitting the economy, and on the assumptions made about the underlying structural model. We also demonstrate that countercyclical fiscal policy can be welfare-reducing if fiscal and monetary policy rules are inertial and not coordinated .

C32, C50, E30, E40,

No abstract

"We estimate forward-looking interest rate rules for five large Organization for Economic Cooperation and Development economies, allowing for time variation in the responses to macroeconomic conditions and in the variance of the policy rate. Conventional constant parameter reaction functions likely blur the impact of (1) model uncertainty, (2) conflicting objectives, (3) shifting preferences, and (4) nonlinearities of policymakers' choices. We find that monetary policies followed by the United States, the United Kingdom, Germany, France, and Italy are best summarized by feedback rules that allow for time variation in their parameters. Estimates point to sizeable differences in the actual conduct of monetary policies even in countries now belonging to the European Monetary Union. Moreover, our time-varying parameter specification outperforms the conventional Taylor rule and generalized method of moment-based estimates of reaction functions in tracking the actual Fed funds rate." ("JEL" E52, E58, E60) Copyright (c) 2009 Western Economic Association International.

In this paper we evaluate empirically the impact of fiscal policy on two key determinants\ud of long-term growth, i.e., private investment and productivity growth. We mostly focus on a\ud panel of 20 OECD economies from 1970 to 2009, although we also present some estimates based\ud on data for 80 developing economies. Our findings suggest that high public debt adversely\ud affects both aggregate investment spending and productivity growth, through distortions related\ud to the size of the public sector. We also find weak evidence of some nonlinear effects on\ud productivity, with government debt becoming more detrimental when above 85-90% of GDP\ud in advanded economies