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Title:Policy mix and debt sustainability : evidence from fiscal policy rules PDF Logo
Authors:Claeys, Peter
Issue Date:2005
Series/Report no.:CESifo working papers 1406
Abstract:This paper characterises rules-based fiscal policy setting. Basically, we translate a standard monetary policy rule into a simple fiscal policy rule. We then infer on fiscal policymakers' reaction coefficients by testing the rule with GMM. Interaction is also tested directly by the inclusion of monetary policy setting. Our results qualify existing evidence on systematic fiscal policy in two respects. First, fiscal policy usually stabilises public debt. And there is indeed substantial interaction between fiscal and monetary policy via the debt channel. Second, sustainability is achieved with a ?stop-go? cycle of consolidation. Consolidation does not come at the cost of less cyclical stabilisation unless debt ratios are high.
Subjects:monetary policy
fiscal policy
policy interaction and policy rules
debt sustainability
JEL:E63
E61
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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