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The effects of monetary policy surprises and fiscal sustainability regimes in the Euro Area
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Autores
Orientador(es)
Resumo(s)
We study the effect of monetary surprise shocks on real output and the price level, conditioned on different fiscal sustainability regimes in the period 2001Q4-2021Q4. First, we estimate time-varying fiscal sustainability coefficients based on Bohn’s (1998) approach through Schlicht’s (2003) method. Then, by taking these sustainability coefficients in a nonlinear local projection model for the Euro Area (aggregate data), Germany, Italy, and Portugal, we analyze the interaction between both policies under (un)sustainable fiscal regimes. Our results show that in a Ricardian regime, output and prices respond to monetary tightening by contracting, while in a non-Ricardian regime the effect on output and price levels is negligible (or even positive). The dependence of the effectiveness of monetary policy on fiscal solvency is valid for Euro-Area and all the countries assessed, and does not depend on whether a country is “core” or “periphery”, but on the policy conduct over time.
Descrição
Palavras-chave
monetary surprises fiscal sustainability local-projection models fiscal-monetary policy mix Euro area Germany Italy Portugal
Contexto Educativo
Citação
Afonso, António, José Alves e Serena Ionta (2023). "The effects of monetary policy surprises and fiscal sustainability regimes in the Euro Area". REM Working paper series, nº 0281/2023
Editora
ISEG - REM - Research in Economics and Mathematics