Fiscal and Monetary Policy Interactions in New Zealand

This paper aims to characterize the interactions between fiscal and monetary and policy in New Zealand. We estimate a multivariate Markov-switching model and document frequent policy switches. We identify two regime: accommodative and non-accommodative monetary policy. In the non-accommodative regime, monetary policy does not respond to changes in government debt, while it does so in the accommodative regime. Further, we show that the underlying shocks are characterized by a fair amount of heteroscedasticity