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Macroeconomic Fluctuations in the United States: The Role of Monetary and Fiscal Policy Shocks

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  • Cosmas Dery

    (Sam Houston State University)

  • Apostolos Serletis

    (University of Calgary)

Abstract

We assess the relative importance of fiscal and monetary policy shocks in explaining macroeconomic fluctuations in the United States. Using a Bayesian structural vector autoregressive model, we identify fiscal and monetary policy shocks based on a penalty function approach. We find that monetary policy shocks are relatively more important than fiscal policy shocks in explaining key macroeconomic variations and especially inflation variations. Our results provide evidence in support of a monetarist explanation of US business cycles.

Suggested Citation

  • Cosmas Dery & Apostolos Serletis, 2023. "Macroeconomic Fluctuations in the United States: The Role of Monetary and Fiscal Policy Shocks," Open Economies Review, Springer, vol. 34(5), pages 961-977, November.
    • Handle: RePEc:kap:openec:v:34:y:2023:i:5:d:10.1007_s11079-023-09712-x
    DOI: 10.1007/s11079-023-09712-x
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