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The effect of monetary policies on inflation: A fiscal perspective

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  • Jiang, Shifu

Abstract

We estimate how US monetary policies, namely the current fed funds rate, forward guidance, and large-scale asset purchases, affect inflation. The effect of large-scale asset purchases on inflation is found to be much smaller in the intended direction than the other policies. This difference is accounted for by the responses of fiscal policy. While fiscal policy is eased in response to monetary tightening in the short run, the long-run fiscal consolidation is less intense under unconventional monetary policies.

Suggested Citation

  • Jiang, Shifu, 2024. "The effect of monetary policies on inflation: A fiscal perspective," Economics Letters, Elsevier, vol. 241(C).
    • Handle: RePEc:eee:ecolet:v:241:y:2024:i:c:s0165176524002891
    DOI: 10.1016/j.econlet.2024.111805
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    More about this item

    Keywords

    Fiscal theory of the price level; VAR; Monetary policy shocks;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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