Euro area monetary and fiscal policy tracking design in the time-frequency domain

Arbeitspapier

This paper first applies the MODWT (Maximal Overlap Discrete Wavelet Transform) to Euro Area quarterly GDP data from 1995 – 2014 to obtain the underlying cyclical structure of the GDP components. We then design optimal fiscal and monetary policy within a large state-space LQ-tracking wavelet decomposition model. Our study builds a MATLAB program that simulates optimal policy thrusts at each frequency range where: (1) both fiscal and monetary policy are emphasized, (2) only fiscal policy is relatively active, and (3) when only monetary policy is relatively active. The results show that the monetary authorities should utilize a strategy that influences the short-term market interest rate to undulate based on the cyclical wavelet decomposition in order to compute the optimal timing and levels for the aggregate interest rate adjustments. We also find that modest emphasis on active interest rate movements can alleviate much of the volatility in optimal government spending, while rendering similarly favorable levels of aggregate consumption and investment. This research is the first to construct joint fiscal and monetary policies in an applied optimal control model based on the short and long cyclical lag structures obtained from wavelet analysis.

Angaben zum Objekt

• ISBN: 978-952-323-054-5
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Bank of Finland Research Discussion Papers ; No. 12/2015

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Econometric and Statistical Methods: Special Topics: Other ; Optimization Techniques; Programming Models; Dynamic Analysis ; Computational Techniques; Simulation Modeling ; Data Collection and Data Estimation Methodology; Computer Programs: Other Computer Software ; Monetary Policy ; Policy Objectives; Policy Designs and Consistency; Policy Coordination

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Crowley, Patrick M. ; Hudgins, David
• Ereignis: Veröffentlichung
• (wer): Bank of Finland
• (wo): Helsinki
• (wann): 2015

Weitere Informationen

• Handle: http://hdl.handle.net/10419/212320
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ