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Monetary And Fiscal Interactions: Short‐Run And Long‐Run Implications

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  • Alan G. Isaac

Abstract

We model policy interactions in a growing economy. Unemployment can persist and matters for the real wage; conflicting claims underpin inflation outcomes; and aggregate demand determines capacity utilization and unemployment. Monetary policy is characterized by a Taylor rule. Fiscal policy is characterized by a marginal tendency to run deficits or surpluses. We address three questions: can monetary policy ensure macroeconomic stability in the absence of coordinated fiscal policy, can fiscal policy ensure macroeconomic stability when the monetary authority pegs the interest rate, and can policy authorities trade‐off some sustained inflation for a long‐run improvement in unemployment rates?

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  • Alan G. Isaac, 2009. "Monetary And Fiscal Interactions: Short‐Run And Long‐Run Implications," Metroeconomica, Wiley Blackwell, vol. 60(1), pages 197-223, February.
    • Handle: RePEc:bla:metroe:v:60:y:2009:i:1:p:197-223
    DOI: 10.1111/j.1467-999X.2008.00342.x
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    Cited by:

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    2. Ricardo Summa & Julia Braga, 2020. "The (conflict-augmented) Phillips Curve is alive and well," Working Papers 0055, ASTRIL - Associazione Studi e Ricerche Interdisciplinari sul Lavoro.
    3. Toshio Watanabe, 2021. "Reconsideration of the IS–LM model and limitations of monetary policy: a Tobin–Minsky model," Evolutionary and Institutional Economics Review, Springer, vol. 18(1), pages 103-129, April.
    4. Ohno, Takashi, 2014. "The role of the Taylor principle in the neo-Kaleckian model when applied to an endogenous market structure," Structural Change and Economic Dynamics, Elsevier, vol. 31(C), pages 32-42.
    5. Toichiro Asada, 2012. "Modeling financial instability," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 9(2), pages 215-232.
    6. Ricardo Summa & Julia Braga, 2020. "Two routes back to the old Phillips curve: the amended mainstream model and the conflict augmented alternative," Bulletin of Political Economy, Bulletin of Political Economy, vol. 14(1), pages 81-115, June.
    7. Christopher Tsoukis & Frederic Tournemaine, 2011. "Social Conflict, Growth And Factor Shares," Metroeconomica, Wiley Blackwell, vol. 62(2), pages 283-304, May.
    8. Eckhard Hein & Marc Lavoie & Till van Treeck, 2011. "Some instability puzzles in Kaleckian models of growth and distribution: a critical survey," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 35(3), pages 587-612.
    9. Rosaria Rita Canale & Pasquale Foresti & Ugo Marani & Oreste Napolitano, 2008. "On keynesian effects of (apparent) non-keynesian fiscal policies," Politica economica, Società editrice il Mulino, issue 1, pages 5-46.
    10. Isabel Almudi & Francisco Fatas-Villafranca & Gloria Jarne & Julio Sanchez-Choliz, 2017. "Rethinking Macroeconomic Policy within a Simple Dynamic Model," Metroeconomica, Wiley Blackwell, vol. 68(3), pages 425-464, July.
    11. Soon Ryoo & Peter Skott, 2017. "Fiscal and Monetary Policy Rules in an Unstable Economy," Metroeconomica, Wiley Blackwell, vol. 68(3), pages 500-548, July.
    12. Hiroaki Sasaki, 2016. "Increased Shareholder Power, Income Distribution, and Employment in a Neo-Kaleckian Model with Conflict Inflation," Discussion papers e-16-008, Graduate School of Economics , Kyoto University.
    13. OHNO, Takashi, 2014. "The Role of the Taylor Principle in the neo-Kaleckian Model when applied to an Endogenous Market Structure," CCES Discussion Paper Series 54, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
    14. Švabovič Miroslav & Miškinis Algirdas, 2016. "A Quantitative Analysis of the Main Lithuanian Taxes and Their Optimisation During the Crisis," Ekonomika (Economics), Sciendo, vol. 95(3), pages 98-111, December.
    15. Muhammad Ali Nasir & Alaa M. Soliman, 2014. "Aspects of Macroeconomic Policy Combinations and Their Effects on Financial Markets," Economic Issues Journal Articles, Economic Issues, vol. 19(1), pages 95-118, March.

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