Measuring the Stances of Monetary and Fiscal Policy

May 12, 2023

Preview Citation

Format: Chicago

Francis Vitek. Measuring the Stances of Monetary and Fiscal Policy, (USA: International Monetary Fund, 2023) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We derive measures of the stances of monetary and fiscal policy within the framework of an empirically plausible extension of the basic New Keynesian model, and jointly estimate them for the United States using a closed form multivariate linear filter. Our theoretical analysis reveals that the neutral stance of monetary policy — as measured by the real natural rate of interest — depends on the stance of fiscal policy, which in turn depends on the composition and expected timing of structural changes in the fiscal instruments. Our empirical application finds that accounting for fiscal policy significantly alters the estimated stance of monetary policy, and that the so-called fiscal impulse is a poor proxy for the stance of fiscal policy.

Subject: Financial services, Fiscal policy, Fiscal stance, Monetary policy, Monetary stance, Output gap, Production, Real interest rates

Keywords: Filter estimation result, Fiscal policy stance, Fiscal stance, Global, Monetary policy stance, Monetary stance, Multivariate linear filter, New keynesian model, Output gap, Real interest rates, Stance of fiscal policy, Stance of monetary policy, Stances of monetary and fiscal policy

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/106
Stock No:

WPIEA2023106
ISBN:

9798400240942
ISSN:

1018-5941

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