Strategic Interactions in U.S. Monetary and Fiscal Policies

We estimate a model in which fiscal and monetary policy obey the targeting rulesof distinct policy authorities, with potentially different objective functions. Wefind: (1) Time-consistent policy fits U.S. time series at least as well as instrument-rules-based behavior; (2) American policies often do not conform to the conven-tional mix of conservative monetary policy and debt-stabilizing fiscal policy, al-though economic agents expect fiscal policy to stabilize debt eventually; (3) Evenafter the Volcker disinflation, policies did not achieve that conventional mix, asfiscal policy did not begin to stabilize debt until the mid 1990s; (4) The high in-flation of the 1970s could have been effectively mitigated by either a switch to afiscal targeting rule or an increase in monetary policy conservatism; (5) If fiscalbehavior follows its historic norm to eventually stabilize debt, current high debtlevels produce only modest inflation; if confidence in those norms erodes, highdebt may deliver substantially more inflation

Guest editors’ introduction: The post-crisis slump

SCOPUS: ed.jinfo:eu-repo/semantics/publishe

Fiscal policy in the aftermath of the financial crisis: Introduction

SCOPUS: ed.jinfo:eu-repo/semantics/publishe

International Shocks on Australia - The Japanese Effect

Although Australia has an equivalently large trading relationship with Japan and the US, current macro models often incorporate only US variables in the external sector of Australia. This paper explores the consequences of including both US and Japanese effects in the international sector of a SVAR model of Australia. The results indicate the significance of the Japanese effects. Excluding Japan results in an overstatement of the impact of US based shocks on the Australian economy. When Japan is included, US based shocks remain dominant in explaining Australian outcomes, but the responses are moderated compared with a model incorporating only a US based external sector. This has important implications for domestic policy responses to international shocks. Without the influence of Japan, domestic monetary policy will over-react to a US based shock

Unpleasant monetarist arithmetic: Macroprudential edition

This paper shows that the recent trend of separating macroprudential and monetary policies (M&Ms) into two autonomous institutions is undesirable. A strategic (game of chicken type) conflict is likely to occur, whereby each M&M ignores exuberant credit booms, trying to induce the other institution to tighten conditions. This has been observed, for example, in Sweden and Norway after 2010. We postulate a generalised concept of stochastic leadership and argue that greater rigidities give the prudential authority the upper hand strategically on the central bank. We show how this leads to a second type of unpleasant monetarist arithmetic and costly economic fluctuations.Web of Science96312391