Active, or passive? Revisiting the role of fiscal policy in the Great Inflation

Arbeitspapier

We reexamine whether pre-Volcker U.S. fiscal policy was active or passive. To do so, we estimate a DSGE model with monetary and fiscal policy interactions employing a sequential Monte Carlo algorithm (SMC) for posterior evaluation. Unlike existing studies, we do not have to treat each policy regime as distinct, separately estimated, models. Rather, SMC enables us to estimate the DSGE model over its entire parameter space. A differentiated perspective results: pre-Volcker macroeconomic dynamics were similarly driven by a passive monetary/passive fiscal policy regime and fiscal dominance. Fiscal policy actions, especially government spending, were critical in the pre-Volcker inflation build-up.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Papers of the Priority Programme 1859 "Experience and Expectation. Historical Foundations of Economic Behaviour" ; No. 17

Classification and Topics

• Classification: Wirtschaft ; Bayesian Analysis: General ; Statistical Simulation Methods: General ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy ; Studies of Particular Policy Episodes
• Subject: Bayesian Analysis ; DSGE Models ; Monetary-Fiscal Policy Interactions ; MonteCarlo Methods

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ettmeier, Stephanie ; Kriwoluzky, Alexander
• Event: Veröffentlichung
• (who): Humboldt University Berlin
• (where): Berlin
• (when): 2020

Further information

• DOI: doi:10.18452/21404
• Handle: http://hdl.handle.net/10419/223198
• URN: urn:nbn:de:kobv:11-110-18452/22193-9
• Last update: 10.03.2025, 11:41 AM CET