English, Article, Journal or magazine article edition: The Comovement between Monetary and Fiscal Policy Instruments: Post-War Period in US. Jesús Vázquez

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • The Comovement between Monetary and Fiscal Policy Instruments: Post-War Period in US.
Author
  • Jesús Vázquez
Physical Description
  • preprint
Notes
  • This paper empirically studies the dynamic relationship between monetary and fiscal policies by analyzing the comovements between the Fed funds rate and the primary deficit/​output ratio. Simple economic thinking establishes that a negative correlation between Fed rate and deficit arises whenever the two policy authorities share a common stabilization objective. However, when budget balancing concerns lead to a drastic deficit reduction the Fed may reduce the Fed rate in order to smooth the impact of fiscal policy, which results in a positive correlation between these two policy instruments. The empirical results show (i) a significant negative comovement between Fed rate and deficit and (ii) that deficit and output gap Granger-cause the Fed funds rate during the post-Volcker era, but the opposite is not true.
  • Fed rate, deficit, comovement, switching regimes
  • RePEc:ehu:dfaeii:200806
Language
  • English
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