Research Topics

Publications on Policy coordination

There are 4 publications for Policy coordination.
  • Modern Money Theory on Fiscal and Monetary Policies: Empirics, Theory and Policymaking


    Working Paper No. 1061 | November 2024
    Originally issued as EDI Working Paper No. 04, 2022
    Drumetz and Pfister make several claims about the inadequacy and fallacies of Modern Money Theory (MMT) and conclude that MMT is nothing more than a political manifesto; there are no theoretical and empirical foundations behind it. This paper addresses this last point by focusing on the fiscal and monetary policy aspects of their criticisms. Contrary to what they claim, MMT is backed by a large body of empirical evidence, a rich institutional analysis, and a well-developed theoretical framework (including mathematical models). MMT provides a detailed analysis of the coordination between the fiscal and monetary branches of government, emphasizes that fiscal deficits are a stylized fact, and uses theoretical tools grounded in institutional realities to explain this stylized fact. In line with a large body of work, MMT concludes that fiscal policy, the provision of an elastic currency, and financial regulations have contributed to economic stability and growth; however government involvement can be improved by changing the policymaking praxis. MMT also concludes that fine-tuning of the economy via monetary policy is not effective and does not attribute the “great moderation” to better monetary management.

  • COVID-19 and Fiscal-Monetary Policy Coordination


    Working Paper No. 1002 | February 2022
    Empirical Evidence from India
    Against the backdrop of the COVID-19 pandemic, this paper analyzes the economic stimulus packages announced by the Indian national government and tries to identify some plausible fiscal and monetary policy coordination. The shrinking fiscal space due to revenue uncertainties has led to a theoretical plausibility of a reemergence of finite monetization of deficits in India. However, the empirical evidence confirms no direct monetization of the deficit.

  • Quantitative Easing, Functional Finance, and the “Neutral” Interest Rate


    Working Paper No. 685 | September 2011

    The main purpose of this study is to explore the potential expansionary effect stemming from the monetization of debt. We develop a simple macroeconomic model with Keynesian features and four sectors: creditor households, debtor households, businesses, and the public sector. We show that such expansionary effect stems mainly from a reduction in the financial cost of servicing the public debt. The efficacy of the channel that allegedly operates through the compression of the risk/term premium on securities is found to be ambiguous. Finally, we show that a country that issues its own currency can avoid becoming stuck in a structural “liquidity trap,” provided its central bank is willing to monetize the debt created by a strong enough fiscal expansion.

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    Author(s):
    Alfonso Palacio-Vera

  • The Euro and Its Guardian of Stability


    Working Paper No. 583 | November 2009
    The Fiction and Reality of the 10th Anniversary Blast

    This paper investigates why Europe fared particularly poorly in the global economic crisis that began in August 2007. It questions the self-portrait of Europe as the victim of external shocks, pushed off track by reckless policies pursued elsewhere. It argues instead that Europe had not only contributed handsomely to the buildup of global imbalances since the 1990s and experienced their implosive unwinding as an internal crisis from the beginning, but that it had also nourished its own homemade intra-Euroland and intra-EU imbalances, the simultaneous implosion of which has further aggravated Europe's predicament. To keep its own house in order in the future, Euroland must shun the outdated “stability oriented” policy wisdom inherited from Germany’s mercantilist past and Bundesbank mythology. Steps toward a fiscal union to back the euro are also warranted.

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