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Monetary-fiscal interactions during large-scale asset purchase programs

Author

Listed:
  • Marcin Kolasa

    (SGH Warsaw School of Economics, IMF International Monetary Fund)

  • Małgorzata Walerych

    (Institute of Economics, Polish Academy of Sciences)

  • Grzegorz Wesołowski

    (Faculty of Economic Sciences, University of Warsaw)

Abstract

This paper examines the effects of asset purchase programs (APPs) that were implemented in a number of countries during the COVID-19 pandemic in concert with large fiscal stimulus packages. We identify APP shocks for 14 advanced and emerging market economies using high-frequency identification techniques. We next estimate panel local projections, finding that APPs tend to stimulate output, but decrease prices. By using a Kitagawa-Blinder-Oaxaca decomposition, we demonstrate that these responses significantly depend on the magnitude of the simultaneously applied fiscal stimulus. Remarkably, higher government purchases during that period crowded in private consumption and had a large effect on inflation. We show that these empirical findings, some of which are inconsistent with a standard New Keynesian framework, can be rationalized in a simple general equilibrium model with segmented asset markets and fiscal dominance.

Suggested Citation

  • Marcin Kolasa & Małgorzata Walerych & Grzegorz Wesołowski, 2025. "Monetary-fiscal interactions during large-scale asset purchase programs," Working Papers 2025-08, Faculty of Economic Sciences, University of Warsaw.
    • Handle: RePEc:war:wpaper:2025-08
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    File URL: https://www.wne.uw.edu.pl/download_file/5390/0
    File Function: First version, 2025
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    More about this item

    Keywords

    asset purchases; monetary-fiscal interactions; fiscal dominance; high-frequency identification; local projections; general equilibrium models;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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