Monetary and fiscal policy interactions in an emerging open economy: a non-Ricardian DSGE approach

0376655 - NHU-C 2014 CZ eng V - Research Report
Algozhina, Aliya
Monetary and fiscal policy interactions in an emerging open economy: a non-Ricardian DSGE approach.
Prague: CERGE-EI, 2012. 28 s. CERGE-EI Working Paper Series, 476. ISSN 1211-3298
R&D Projects: GA MŠMT(CZ) SVV 265801/2012
Institutional support: PRVOUK-P23
Keywords : monetary policy * fiscal policy * emerging open economy
Subject RIV: AH - Economics
http://www.cerge-ei.cz/pdf/wp/Wp476.pdf

The monetary and fiscal policy interactions have gained a new research interest after the 2008 crisis due to the global increase of fiscal debt. This paper constructs a macroeconomic model of joint fiscal and monetary policy for an emerging open economy taking into account its structural uniqueness. In particular, the two instruments of monetary policy, interest rate and foreign exchange intervention, the two instruments of fiscal policy, public consumption and public investment, the two types of households, optimizers and rule-of-thumb individuals, and a foreign debt via collateral constraint are modeled here in a single DSGE framework. The parameters are calibrated for the case of Hungary using data over 1995Q1-2011Q3. The impulse response functions to public investment, public consumption, and interest rate shocks reveal some unconventional findings in favor of the fiscal theory of price level as opposed to the traditional monetarist doctrine.
Permanent Link: http://hdl.handle.net/11104/0222890