The interaction between fiscal and monetary policies : evidence from Sweden

Sebastian Ankargren and Hovick Shahnazarian

This paper estimates the interaction between monetary- and fiscal policy using a structural VAR model with time-varying parameters. For demand and supply shocks, the two policies are estimated to be complementary, while for monetary and fiscal policies shocks the two policies act as substitutes. The budget elasticity varies between 0.3-0.6, indicating that an economic downturn can get a non-negligible negative impact on public finances. The fiscal multiplier is estimated to be stable and higher than one suggesting that fiscal policy can be used to support monetary policy to stabilize the economy in case monetary policy is constrained by the lower effective bound.

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Year of publication:	February 2019 ; (Updated april 2019)
Authors:	Ankargren, Sebastian ; Shahnazarian, Hovick
Publisher:	Stockholm : Sveriges Riksbank
Subject:	Fiscal policy \| monetary policy \| time-varying parameter structural \| VAR \| zero and sign restrictions \| Bayesian estimation \| Geldpolitik \| Monetary policy \| Finanzpolitik \| Schweden \| Sweden \| VAR-Modell \| VAR model \| Schätzung \| Estimation \| Bayes-Statistik \| Bayesian inference \| Schock \| Shock