Policy mix and debt sustainability : evidence from fiscal policy rules

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.

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Year of publication:	2005
Authors:	Claeys, Peter
Publisher:	Munich : Center for Economic Studies and Ifo Institute (CESifo)
Subject:	Finanzpolitik \| Geldpolitik \| Regelgebundene Politik \| Transmissionsmechanismus \| Öffentliche Schulden \| EU-Staaten \| Japan \| Vereinigte Staaten \| monetary policy \| fiscal policy \| policy interaction and policy rules \| debt sustainability

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Series:	CESifo Working Paper ; 1406
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	479305773 [GVK] hdl:10419/18770 [Handle]
Classification:	E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization ; E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Source:	EconStor