Is Monetary Policy Constrained by Fiscal Policy?

20 Pages Posted: 13 Apr 2013

See all articles by Carlos Montoro

Carlos Montoro

Central Reserve Bank of Peru

Előd Takáts

Bank for International Settlements (BIS)

James Yetman

Bank for International Settlements (BIS)

Date Written: October 1, 2012

Abstract

In this paper we analyse how fiscal policy has affected monetary policy in the emerging market economies (EMEs). We find that most EMEs have pursued countercyclical fiscal and monetary policy over the past decade, with little evidence of fiscal dominance, in contrast to earlier periods. Our results also suggest that stronger fiscal positions are weakly associated with lower equilibrium real interest rates, and smaller deficits with lower inflation. Overall, improvements in fiscal policy in EMEs appear to have increased the effectiveness of monetary policy.

Full publication: Fiscal Policy, Public Debt and Monetary Policy in Emerging Market Economies

Keywords: fiscal policy, monetary policy, Taylor rule

JEL Classification: E63, H63

Suggested Citation

Montoro, Carlos and Takáts, Előd and Yetman, James, Is Monetary Policy Constrained by Fiscal Policy? (October 1, 2012). BIS Paper No. 67b, Available at SSRN: https://ssrn.com/abstract=2205187

Carlos Montoro (Contact Author)

Central Reserve Bank of Peru ( email )

Jirón Miroquesada 441
Lima, Lima 1
Peru

Előd Takáts

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

James Yetman

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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