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U.S. and Euro Area Monetary and Fiscal Interactions During the Pandemic: A Structural Analysis
Author:
Andrew Hodge
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Zoltan Jakab
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Jesper Lindé 0000000404811396 https://isni.org/isni/0000000404811396 International Monetary Fund

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Vina Nguyen 0000000404811396 https://isni.org/isni/0000000404811396 International Monetary Fund

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Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 222
Language:
English
Publication Date:
11 Nov 2022
DOI:
https://doi.org/10.5089/9798400219818.001
ISBN:
9798400219818
ISSN:
1018-5941
Pages:
47
Keywords:
Fiscal Policy; Monetary Policy; DSGE Model; inflation targeting in the U.S.; IMF working paper 22/222; changes in the U.S.; Phillips curve; AIT gap; Inflation; Fiscal stimulus; Interest rate floor; Public investment spending; Central bank policy rate; Global; Western Hemisphere
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This paper employs a two-country New Keynesian DSGE model to assess the macroeconomic impact of the changes in monetary policy frameworks and the fiscal support in the U.S. and euro area during the pandemic. Moving from a previous target of “below, but close to 2 percent” to a formal symmetric inflation targeting regime in the euro area or from flexible to average inflation targeting in the U.S. is shown to boost output and inflation in both regions. Meanwhile, the fiscal packages approved in the U.S. and the euro area, and a slower withdrawal of fiscal support in the euro area, have a similar impact on output and inflation as changing the monetary policy frameworks . Simultaneously implementing these policies is mutually reinforcing, but insufficient to fully explain the unexpected increase in core inflation during 2021.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2022: Issue 222