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How Loose, How Tight? A Measure of Monetary and Fiscal Stance for the Euro Area
Author:
Nicoletta Batini
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Mr. Alessandro Cantelmo
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Mr. Giovanni Melina
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Stefania Villanull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 086
Language:
English
Publication Date:
05 Jun 2020
DOI:
https://doi.org/10.5089/9781513546087.001
ISBN:
9781513546087
ISSN:
1018-5941
Pages:
75
Keywords:
WP; Policy shock; policy stance; f DMFCI; shock process; evolution of Dmfcis; condition index; Fiscal stance; Dynamic stochastic general equilibrium models; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper builds a model-based dynamic monetary and fiscal conditions index (DMFCI) and uses it to examine the evolution of the joint stance of monetary and fiscal policies in the euro area (EA) and in its three largest member countries over the period 2007-2018. The index is based on the relative impacts of monetary and fiscal policy on demand using actual and simulated data from rich estimated models featuring also financial intermediaries and long-term government debt. The analysis highlights a short-lived fiscal expansion in the aftermath of the Global Financial Crisis, followed by a quick tightening, with monetary policy left to be the “only game in town” after 2013. Individual countries’ DMFCIs show that national policy stances did not always mirror the evolution of the aggregate stance at the EA level, due to heterogeneity in the fiscal stance.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2020: Issue 086