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Fiscal or monetary? Efficacy of regulatory regimes and energy trilemma of the inflation reduction act (IRA)

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  • Mirza, Nawazish
  • Naqvi, Bushra
  • Rizvi, Syed Kumail Abbas
  • Umar, Muhammad

Abstract

This paper examines the relative effectiveness of fiscal and monetary policies in achieving the goals of the Inflation Reduction Act of 2022 (IRA), a historic legislation that addresses the energy trilemma of security, inflation, and sustainability, while also promoting growth and employment in the U.S. The IRA relies mainly on fiscal measures, such as subsidies and stimulus packages, which can create deficit or surplus depending on the tax revenues. However, some of the IRA goals, such as inflation, growth, and employment, are largely influenced by monetary factors, which suggests the possibility of using monetary policies as alternative or complementary instruments in the IRA. Using a macroeconomic model, we compare the impacts of fiscal and monetary policies on the IRA outcomes and find that the monetary policy is more effective than the fiscal policy in achieving the IRA objectives, especially in the post-covid period. Our results have important implications for policymakers who need to evaluate the optimal policy mix for the successful implementation of the IRA.

Suggested Citation

  • Mirza, Nawazish & Naqvi, Bushra & Rizvi, Syed Kumail Abbas & Umar, Muhammad, 2023. "Fiscal or monetary? Efficacy of regulatory regimes and energy trilemma of the inflation reduction act (IRA)," International Review of Financial Analysis, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:finana:v:90:y:2023:i:c:s105752192300337x
    DOI: 10.1016/j.irfa.2023.102821
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