Characterizing Monetary and Fiscal Policy Rules and Interactions when Commodity Prices Matter.Citation formats

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Characterizing Monetary and Fiscal Policy Rules and Interactions when Commodity Prices Matter. / Chuku, Chuku; Middleditch, Paul.

In: The Manchester School, Vol. 32, 2019.

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@article{00726b4c312b43948005a4a6e8f6cad8,
title = "Characterizing Monetary and Fiscal Policy Rules and Interactions when Commodity Prices Matter.",
abstract = "We examine the extent to which commodity price fluctuations matter for monetary and fiscal policy formulation in high primary commodity export economies. Markov mixture specifications of monetary and fiscal policy rules, stylized to account for commodity price slacks are estimated using specifically designed Bayesian techniques. We find that policymakers do indeed respond to commodity price slacks, and with varying degrees, depending on the policy regime in place and the country under investigation. Policy is characterized by distinctive episodes of active and passive policy regimes, driven by the response of monetary policy to inflation and the response of fiscal policy to past government debt. Moreover, monetary authorities fail to act aggressively enough to achieve announced inflation targets or to synchronize with fiscal authorities. The results hold implications for the correct specification of policy rules and interactions in DSGE models for these economies.",
keywords = "Economic policy, policy interactions, Markov-switching Bayesian estimation, primary commodities",
author = "Chuku Chuku and Paul Middleditch",
year = "2019",
doi = "10.1111/manc.12297",
language = "English",
volume = "32",
journal = "Manchester School",
issn = "1463-6786",
publisher = "John Wiley & Sons Ltd",

}

RIS

TY - JOUR

T1 - Characterizing Monetary and Fiscal Policy Rules and Interactions when Commodity Prices Matter.

AU - Chuku, Chuku

AU - Middleditch, Paul

PY - 2019

Y1 - 2019

N2 - We examine the extent to which commodity price fluctuations matter for monetary and fiscal policy formulation in high primary commodity export economies. Markov mixture specifications of monetary and fiscal policy rules, stylized to account for commodity price slacks are estimated using specifically designed Bayesian techniques. We find that policymakers do indeed respond to commodity price slacks, and with varying degrees, depending on the policy regime in place and the country under investigation. Policy is characterized by distinctive episodes of active and passive policy regimes, driven by the response of monetary policy to inflation and the response of fiscal policy to past government debt. Moreover, monetary authorities fail to act aggressively enough to achieve announced inflation targets or to synchronize with fiscal authorities. The results hold implications for the correct specification of policy rules and interactions in DSGE models for these economies.

AB - We examine the extent to which commodity price fluctuations matter for monetary and fiscal policy formulation in high primary commodity export economies. Markov mixture specifications of monetary and fiscal policy rules, stylized to account for commodity price slacks are estimated using specifically designed Bayesian techniques. We find that policymakers do indeed respond to commodity price slacks, and with varying degrees, depending on the policy regime in place and the country under investigation. Policy is characterized by distinctive episodes of active and passive policy regimes, driven by the response of monetary policy to inflation and the response of fiscal policy to past government debt. Moreover, monetary authorities fail to act aggressively enough to achieve announced inflation targets or to synchronize with fiscal authorities. The results hold implications for the correct specification of policy rules and interactions in DSGE models for these economies.

KW - Economic policy

KW - policy interactions

KW - Markov-switching Bayesian estimation

KW - primary commodities

U2 - 10.1111/manc.12297

DO - 10.1111/manc.12297

M3 - Article

VL - 32

JO - Manchester School

JF - Manchester School

SN - 1463-6786

ER -