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The interaction between fiscal and monetary policy in Hungary over the past decade and a half

Author

Listed:
  • György Matolcsy

    (Governor of the Magyar Nemzeti Bank)

  • Dániel Palotai

    (Magyar Nemzeti Bank)

Abstract

After the introduction of inflation targeting in 2001, fiscal and monetary policy were out of sync for 12 years, which wreaked havoc on the Hungarian economy due to the close relationship and interaction between the two. After 2013, on the back of the fiscal reforms of the previous two to three years, and the subsequent monetary policy reforms restored the desired harmony, which contributed to achieving the objectives of the two parties, including price stability, financial stability and sustainable fiscal policy, while also laying the groundwork for long-term growth. This paper investigates which mix of fiscal and monetary policy has shaped the past 15 years and the channels through which fiscal and monetary economic policy of different activity or dominance impacted each other, and the degree of success of their (co)operation. The model devised by Eric Leeper provided the conceptual and theoretical framework for our study, while the actual data and experiences are drawn from Hungary’s economic history of the past 15 years. This paper also takes a closer look at the causes, objectives, main elements and impact of the turnaround in fiscal policy that took place between 2010 and 2013 and in monetary policy after 2013.

Suggested Citation

  • György Matolcsy & Dániel Palotai, 2016. "The interaction between fiscal and monetary policy in Hungary over the past decade and a half," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 15(2), pages 5-32.
    • Handle: RePEc:mnb:finrev:v:15:y:2016:i:2:p:5-32
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    Citations

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    Cited by:

    1. Marcell Peter Granat & Gabor Neszveda & Dorottya Szabo, 2023. "An Empirical Analysis of the Predictive Power of European Yield Curves," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 22(3), pages 48-66.
    2. Novák, Zsuzsanna & Vámos, Imre, 2017. "Conversion of Foreign Currency Loans in the CEECs," Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference (2017), Dubrovnik, Croatia, in: Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference, Dubrovnik, Croatia, 7-9 September 2017, pages 66-73, IRENET - Society for Advancing Innovation and Research in Economy, Zagreb.
    3. György Matolcsy & Dániel Palotai, 2019. "Hungary Is on the Path to Convergence," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 18(3), pages 5-28.

    More about this item

    Keywords

    monetary policy; fiscal policy; economic policy consistency; fiscal dominance theory; Hungarian economic history;
    All these keywords.

    JEL classification:

    • 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
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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