The policy mix in the US and EMU: Evidence from a SVAR analysis |
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| Institution: | 1. ISEG-UL – Universidade de Lisboa, REM – Research in Economics and Mathematics, UECE – Research Unit on Complexity and Economics, R. Miguel Lupi 20, 1249-078 Lisbon, Portugal;2. ISEG-UL – Universidade de Lisboa, Portugal;1. Department of Tourism and Hospitality, TransWorld University, No. 1221, Zhennan Rd., Douliu City, Yunlin County 640, Taiwan;2. Department of Economics, Soochow University, No. 56, Kueiyang Street, Section 1, Taipei 100, Taiwan;1. Patrick E. Molony Professor, Department of Economics, Auburn University, 138 Miller Hall, Auburn, AL 36849, United States;2. Department of Economics, University of California Santa Cruz, 1156 High Street, Santa Cruz, CA 95064, United States;1. Department of Management Sciences, COMSATS University Islamabad, Attock Campus, Pakistan;2. Rennes School of Business, Rennes City, Brittany, France;3. Schulich School of Business, York University, Toronto, Canada;4. Department of Economics, Pusan National University, Busan, Republic of Korea;1. Department of Business Administration, Fu Jen Catholic University, No. 510, Zhongzheng Rd., Xinzhuang Dist., New Taipei City 24205, Taiwan;2. Department of Business Administration, National Chin-Yi University of Technology, No. 57, Sec. 2, Zhongshan Rd., Taiping Dist., Taichung 41170, Taiwan |
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| Abstract: | We use a SVAR approach to the effects of fiscal and monetary policies, as well as their interactions (policy mix) for the US and the Euro Area (EMU). Overall, our results show that these two cases are different from each other. First, while in the case of the US there is evidence of Keynesian monetary policy, the same is not true in the case of the EMU. Second, considering the effects of the global economic and financial crisis, there is evidence of non-Keynesian fiscal policy in the case of the EMU (expansionary fiscal consolidation), while it does not hold in the case of the US. Third, there is evidence supporting the traditional inverse relationship between monetary policy interest rates and inflation in the case of the US, whereas in the case of the EMU there is a price puzzle (frequent in SVAR studies). Fourth, the baseline model seems to be robust in the case of the US, when considering the effects of the economic and financial crisis 2007–2009, while the opposite holds in the case of the EMU. However, in both cases, the policies seem to act as complements. Another similarity appears when analysing the relationship between public spending and taxation, where there is evidence supporting a fiscal retrenchment. |
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| Keywords: | Fiscal policy Monetary policy Crisis Unconventional monetary policy US EMU |
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