Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/161925
Authors: 
Chang, Yoosoon
Kwak, Boreum
Year of Publication: 
2017
Series/Report no.: 
IWH Discussion Papers 15/2017
Abstract: 
We investigate U.S. monetary and fiscal policy regime interactions in a model, where regimes are determined by latent autoregressive policy factors with endogenous feedback. Policy regimes interact strongly: Shocks that switch one policy from active to passive tend to induce the other policy to switch from passive to active, consistently with existence of a unique equilibrium, though both policies are active and government debt grows rapidly in some periods. We observe relatively strong interactions between monetary and fiscal policy regimes after the recent financial crisis. Finally, latent policy regime factors exhibit patterns of correlation with macroeconomic time series, suggesting that policy regime change is endogenous.
Subjects: 
monetary and fiscal policy interactions
endogenous regime switching
adaptive LASSO
time-varying coefficient VAR
factor augmented VAR
JEL: 
C13
C32
C38
E52
E58
E63
Document Type: 
Working Paper

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