Fiscal Stimulus and the Systematic Response of Monetary Policy
AbstractEconomic theory suggests that the effects of fiscal stimulus can vary substantially with the systematic response of monetary policy. Empirical estimates of the causal effects of fiscal shocks implicitly embed a particular monetary reaction: they provide treatment effects that average across in-sample monetary policy. Building on McKay and Wolf (2022), I discuss how evidence on monetary policy shocks can be used to predict the effects of fiscal stimulus under arbitrary monetary policy reaction. I review the underlying theory, propose a simple empirical strategy, and present an application.
CitationWolf, Christian K. 2023. "Fiscal Stimulus and the Systematic Response of Monetary Policy." AEA Papers and Proceedings, 113: 388-93. DOI: 10.1257/pandp.20231072
- E23 Macroeconomics: Production
- E31 Price Level; Inflation; Deflation
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- E62 Fiscal Policy