IMF Working Papers

How Loose, How Tight? A Measure of Monetary and Fiscal Stance for the Euro Area

By Nicoletta Batini, Alessandro Cantelmo, Giovanni Melina, Stefania Villa

June 5, 2020

Download PDF

Preview Citation

Format: Chicago

Nicoletta Batini, Alessandro Cantelmo, Giovanni Melina, and Stefania Villa. How Loose, How Tight? A Measure of Monetary and Fiscal Stance for the Euro Area, (USA: International Monetary Fund, 2020) accessed November 21, 2024

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.

Summary

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.

Subject: Dynamic stochastic general equilibrium models, Econometric analysis, Expenditure, Financial crises, Fiscal policy, Fiscal stance

Keywords: Condition index, Dynamic stochastic general equilibrium models, Evolution of Dmfcis, F DMFCI, Fiscal stance, Global, Policy shock, Policy stance, Shock process, WP

Publication Details

  • Pages:

    75

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2020/086

  • Stock No:

    WPIEA2020086

  • ISBN:

    9781513546087

  • ISSN:

    1018-5941

You May Also Be Interested In...

Growth Convergence and Public Finances of India and its States

November 15, 2024

Republic of Tajikistan: Technical Assistance Report-Public Investment Management Assessment with the Climate Module

November 8, 2024

Kenya: Seventh and Eighth Reviews Under the Extended Fund Facility and Extended Credit Facility Arrangements, Requests for Reduction of Access, Augmentation and Rephasing of Access Under the Arrangements, Modifications of Performance Criteria, Waiver of Nonobservance of Performance Criteria, and Review Under the Resilience and Sustainability Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Kenya

November 1, 2024

Mexico: 2024 Article IV Consultation and Review Under the Flexible Credit Line Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Mexico

November 1, 2024