Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279378 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10627
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We study the effect of monetary policy surprise shocks on real output and the price level, conditioned on different fiscal stances in the period 2001Q4-2021Q4 for a panel of the 19 countries of the Euro Area. Applying local projection methodology, we find that the effect of monetary shocks depends on each country's fiscal stance, specifically, if for output response the debt is more important in the effect of monetary policy, for prices, the "Ricardian" nature of fiscal policy appears to be far more crucial. However, regarding inflation targeting, monetary policy is most effective in the low debt regime and in the high fiscal sustainability one. Our results are robust to different specifications and models and have important policy implications notably for monetary policy, which should consider different fiscal stances when pursuing specific monetary policy objectives.
Subjects: 
monetary policy surprises
public debt
fiscal sustainability
local-projection models
fiscal-monetary policy mix
Euro area
JEL: 
C32
E58
E62
E63
Document Type: 
Working Paper
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