scholarly journals Monetary and Fiscal Policies Interaction in a Large Emerging Economy: Which Is the Leader Policy?

2021 ◽  
Vol 13 (11) ◽  
pp. 77
Author(s):  
Ricardo Ramalhete Moreira ◽  
Edson Zambon Monte

This article analyzed the intertemporal interaction between monetary and fiscal policies in Brazil. We aimed at identifying if structural innovations to the real interest rate were able to induce unexpected effects on fiscal and inflation dynamics. To do so, we estimated Structural Vector Autoregressive (SVAR) models over the period from Jan/2004 to Apr/2019. Moreover, we filtered out the time series’ long-memory component through a fractional integration approach, so that we did not build our analysis on traditional unit root tests. The findings showed that monetary policy shocks robustly activated an unconventional transmission channel based on the Fiscal Theory of the Price Level, i.e., an unexpected and induced change in primary surpluses, through a wealth effect, as mechanism to satisfy the Government’s intertemporal budget constraint. Such a result is strongly linked to another evidence, that is, the monetary policy`s role as a leader in shaping inflation over time.

2021 ◽  
Vol 13 (11) ◽  
pp. 81
Author(s):  
Ricardo Ramalhete Moreira ◽  
Edson Zambon Monte

This article analyzed the intertemporal interaction between monetary and fiscal policies in Brazil. We aimed at identifying if structural innovations to the real interest rate were able to induce unexpected effects on fiscal and inflation dynamics. To do so, we estimated Structural Vector Autoregressive (SVAR) models over the period from Jan/2004 to Apr/2019. Moreover, we filtered out the time series’ long-memory component through a fractional integration approach, so that we did not build our analysis on traditional unit root tests. The findings showed that monetary policy shocks robustly activated an unconventional transmission channel based on the Fiscal Theory of the Price Level, i.e., an unexpected and induced change in primary surpluses, through a wealth effect, as mechanism to satisfy the Government’s intertemporal budget constraint. Such a result is strongly linked to another evidence, that is, the monetary policy`s role as a leader in shaping inflation over time.


2012 ◽  
Vol 17 (4) ◽  
pp. 830-860 ◽  
Author(s):  
Sandra Eickmeier ◽  
Boris Hofmann

This paper applies a factor-augmented vector autoregressive model to U.S. data with the aim of analyzing monetary transmission via private sector balance sheets, credit risk spreads, and house prices and of exploring the role of monetary policy in the housing and credit boom prior to the global financial crisis. We find that monetary policy shocks have a persistent effect on house prices, real estate wealth, and private sector debt and a strong short-lived effect on risk spreads in money and mortgage markets. Moreover, the results suggest that monetary policy contributed considerably to the unsustainable precrisis developments in housing and credit markets. Although monetary policy shocks contributed discernibly at a late stage of the boom, feedback effects of other (macroeconomic and financial) shocks via lower policy rates kicked in earlier and appear to have been considerable.


2020 ◽  
Vol 102 (4) ◽  
pp. 690-704 ◽  
Author(s):  
Pascal Paul

This paper studies how monetary policy jointly affects asset prices and the real economy in the United States. I develop an estimator that uses high-frequency surprises as a proxy for the structural monetary policy shocks. This is achieved by integrating the surprises into a vector autoregressive model as an exogenous variable. I use current short-term rate surprises because these are least affected by an information effect. When allowing for time-varying model parameters, I find that compared to the response of output, the reaction of stock and house prices to monetary policy shocks was particularly low before the 2007–2009 financial crisis.


2019 ◽  
Vol 24 (8) ◽  
pp. 1881-1903
Author(s):  
Aarti Singh ◽  
Stefano Tornielli Di Crestvolant

We examine whether input–output interactions among industries impact the transmission of monetary policy shocks through the economy. Using vector autoregressive (VAR) methods we find evidence of heterogeneity in the output response to a monetary policy shock in both finished goods industries and intermediate goods industries. While output responses in finished goods industries can be related to heterogeneity in industry characteristics, this relationship is not so obvious for intermediate goods industries. For the intermediate goods industries in our sample, we find new evidence of demand-spillover effects that impact the transmission of monetary policy via input–output linkages.


2019 ◽  
Vol 11 (10) ◽  
pp. 2776 ◽  
Author(s):  
Rangan Gupta ◽  
Zhihui Lv ◽  
Wing-Keung Wong

Unlike the existing literature, which primarily studies the impact of only monetary policy shocks on real estate investment trusts (REITs), this paper develops a change-point vector autoregressive (VAR) model and then analyzes, for the first time, regime-specific impact of demand, supply, monetary policy, and spread yield shocks, identified using sign-restrictions, on US REITs returns. The model first isolates four major macroeconomic regimes in the US since the 1970s and discloses important changes to the statistical properties of REITs returns and its responses to the identified shocks. A variance decomposition analysis revealed aggregate supply shocks to have dominated in the early part of the sample period, and monetary policy and spread shocks at the end. Our results imply that ignoring other possible shocks in the model is likely to lead to incorrect inferences, and over-reliance on (conventional) monetary policy in correcting for possible bubbles in the REITs sector, which it will fail to rectify, given the importance of other shocks driving the REITs sector.


2017 ◽  
Vol 4 (8) ◽  
pp. 642
Author(s):  
Mohammad Abdul Adim ◽  
Raditya Sukmana

The purpose of this research is to find out the effect of monetary policy shocks and macro variables towards Islamic banks deposits. The method that used in this researc his quantitative method and also using secondary data which obtained from financial reports and other reports started from 2005 until the end of 2015. Analysis technique used is Johansen Cointegration and Vector Autoregressive (VAR). The result are monetary policy shocks have affect significant on deposits Islamic banks in long run and short run. Furthermore, variables macroeckonomic like GDP and CPI have effect significant on deposits in Islamic banks. interestingly, the money supply in the long run have significant effect on Islaimc banks deposits, but in the short run does not have a significant effect on the deposits of Islamic banks.


2021 ◽  
Vol 66 (228) ◽  
pp. 101-122
Author(s):  
Mohamed Gassouma ◽  
Kais Ben-Ahmed

This paper presents an empirical analysis of the effect of monetary policy shocks on credit supply in Tunisia, using a vector autoregressive model and a nonlinear interactive model. The focus is on the magnitude of these shocks in the presence of foreign banks. The variables of interest are the concentration index of deposit banks, and monetary policy shocks based on the monthly data of 27 universal and business banks covering the period 1993 to 2016. The results support a positive and significant impact of concentration index on credit supply. However, monetary policy shocks appear to have no significant effect when the market is concentrated with the entry of foreign banks. The findings of this study also reveal that the entry of foreign banks neutralises monetary policy shock transmission in the credit supply, which may be offset by market discipline.


Econometrics ◽  
2018 ◽  
Vol 6 (3) ◽  
pp. 36 ◽  
Author(s):  
Helmut Lütkepohl ◽  
Aleksei Netšunajev

We use a cointegrated structural vector autoregressive model to investigate the relation between monetary policy in the euro area and the stock market. Since there may be an instantaneous causal relation, we consider long-run identifying restrictions for the structural shocks and also used (conditional) heteroscedasticity in the residuals for identification purposes. Heteroscedasticity is modelled by a Markov-switching mechanism. We find a plausible identification scheme for stock market and monetary policy shocks which is consistent with the second-order moment structure of the variables. The model indicates that contractionary monetary policy shocks lead to a long-lasting downturn of real stock prices.


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