Monetary–fiscal interaction and quantitative easing

Hollmayr, Josef; Kühl, Michael

doi:10.1016/j.econlet.2018.10.033

Cited by 1 publication

(1 citation statement)

References 15 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The DSGE model developed in the paper incorporates standard features such as a closed economy with a monopolistic product market, a heterogeneous household sector with Ricardian and non-Ricardian households and price and real wage persistence. Over and above, it allows for a fiscal block and term structure of interest rates (Zagaglia, 2009; Harrison, 2010; Hollmayr and Kühl, 2019).…”

Section: Modelmentioning

confidence: 99%

Monetary-fiscal coordination: when, why and how?

Sharma

Padhi

Dhal

2022

SEF

View full text Add to dashboard Cite

Purpose This paper aims to revisit the theme of fiscal-monetary coordination in a general equilibrium setup that allows for unconventional monetary policy, monetary policy transmission and developing country characteristics. Design/methodology/approach This paper uses a calibrated new Keynesian dynamic stochastic general equilibrium (DSGE) model to study fiscal-monetary interaction. Findings Debt sits at the center of monetary-fiscal interaction. Under high-debt conditions, the inflation-output trade-off rises with an increase in the strictness with which monetary policy targets inflation, undermining the standard prescription of strict inflation targeting. At the same time, the transmission of monetary policy is also impeded, due to which unconventional monetary policy becomes more appropriate. The need for coordination among the policies gets enhanced in the presence of borrowing cost channel. While the presence of borrowing cost channel increases the need for policy coordination regardless of the debt situation, features like higher share of non-Ricardian households and weaker monetary policy transmission affect monetary-fiscal interaction to a greater extent under high-debt environment. Originality/value First, this paper uses inflation-output trade-off as a metric, to analyze fiscal-monetary interaction. Second, this paper considers the impact of developing country characteristics (such as a higher share of non-Ricardian households, impeded monetary policy transmission and supply constraints/borrowing cost channel) on fiscal-monetary interaction. Third, the DSGE model developed in this paper incorporates open market operations that could shed light on the role of unconventional monetary policy in the presence of high fiscal deficit and debt, which is particularly relevant in the current context of the COVID-19 pandemic. Fourth, the model also permits an investigation into monetary policy transmission under different debt regimes.

show abstract

Section: Modelmentioning

confidence: 99%