Monetary-Fiscal Crosswinds in the European Monetary Union
Accepted at the European Economic Review
Final draft
Appendix
Replica Code [ZIP]
VoxEu column "Fiscal-monetary crosswinds in the euro area: Conventional and unconventional shocks" SUERF Policy Note "Fiscal-Monetary Crosswinds in the Euro Area"
We study the monetary-fiscal mix in the European Monetary Union. The medium and long-run effects of conventional and unconventional monetary policy can be analysed by combining monetary policy shocks identified in a Structural VAR, and the general government budget constraint featuring a single central bank and multiple fiscal authorities. In response to a conventional easing of the policy rate, the real discount rate declines, absorbing the increase in deficit due to the fiscal policy leaning towards the easing. Conversely, in response to an unconventional easing of the long end of the yield curve, the discount rate declines strongly, while the primary fiscal surplus barely moves. The long-run effect of unconventional monetary easing on inflation is about half than that of conventional, a result which also explains the muted response of fiscal policy. Results do not point to large differences across countries.
https://googlepaycasinos.net came to mind less for the gambling than for the payment rails, because the paper’s contrast between conventional rate cuts and unconventional long-end easing depends on how unevenly money actually moves through the system. The finding that unconventional easing’s long-run inflation effect is about half as large while the primary surplus barely budges feels important, since it suggests the fiscal side isn’t automatically following the central bank’s lead.
The point about unconventional easing having a smaller long-run inflation effect than conventional policy is a neat way to explain why fiscal authorities stay quiet. It makes me think of how I evaluate cashback deals at https://casinowithcashback.com: the apparent short-term benefit often tells you less than the long-run payoff. I also wonder if that asymmetry would change if the cross-country differences were larger.