{"title":"Fiscal policy and the monetary transmission mechanism","authors":"Nicolas Caramp , Dejanir H. Silva","doi":"10.1016/j.red.2023.08.001","DOIUrl":null,"url":null,"abstract":"<div><p><span><span>The economy's response to monetary policy depends on its fiscal backing. We present a novel decomposition of the equilibrium that links the </span>wealth<span> effect, i.e. the revaluation of households' financial and human wealth, to the fiscal response to monetary policy. When monetary policy has fiscal consequences, monetary variables affect the timing of aggregate output while fiscal variables shape its present value and the wealth effect. Consequently, a contractionary monetary policy reduces </span></span>inflation only if followed by contractionary fiscal policy. The slope of the Phillips curve determines the importance of monetary-fiscal coordination for the effectiveness of monetary policy.</p></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"51 ","pages":"Pages 716-746"},"PeriodicalIF":2.3000,"publicationDate":"2023-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"1","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Review of Economic Dynamics","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1094202523000479","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 1
Abstract
The economy's response to monetary policy depends on its fiscal backing. We present a novel decomposition of the equilibrium that links the wealth effect, i.e. the revaluation of households' financial and human wealth, to the fiscal response to monetary policy. When monetary policy has fiscal consequences, monetary variables affect the timing of aggregate output while fiscal variables shape its present value and the wealth effect. Consequently, a contractionary monetary policy reduces inflation only if followed by contractionary fiscal policy. The slope of the Phillips curve determines the importance of monetary-fiscal coordination for the effectiveness of monetary policy.
期刊介绍：
Review of Economic Dynamics publishes meritorious original contributions to dynamic economics. The scope of the journal is intended to be broad and to reflect the view of the Society for Economic Dynamics that the field of economics is unified by the scientific approach to economics. We will publish contributions in any area of economics provided they meet the highest standards of scientific research.
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