Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/314100 
Authors: 
Year of Publication: 
2020
Citation: 
[Journal:] Journal of Applied Economics [ISSN:] 1667-6726 [Volume:] 23 [Issue:] 1 [Year:] 2020 [Pages:] 426-449
Publisher: 
Taylor & Francis, Abingdon
Abstract: 
The significant role of government consumption in affecting economic conditions raises the necessity for monetary policy to take into account the behaviour of fiscal policy and to also take into account how the presence of the fiscal sector might affect the transmission mechanism of monetary policy in the economy. To test for this, we build an otherwise standard New Keynesian model that incorporates non-separable government consumption. The simulations of the model show that when government consumption has a crowding-in effect on private consumption, it will dampen the transmission mechanism of monetary policy, and vice versa. The empirical estimations of the paper also support the theoretical findings of the model, as the panel regressions show that, in OECD countries, government consumption dampens the effect of the policy rate on private consumption. These results are robust to the zero lower bound era.
Subjects: 
monetary policy
business cycle
joint analysis of fiscal and monetary policy
New Keynesian models
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.