What is the Importance of Monetary and Fiscal Shocks in Explaining US Macroeconomic Fluctuations?
33 Pages Posted: 25 Jan 2011 Last revised: 6 Feb 2011
Date Written: January 15, 2011
Abstract
This paper analyzes the importance of monetary and fiscal policy shocks in explaining US macroeconomic fluctuations, and establishes new stylized facts. The novelty of our empirical analysis is that we jointly consider both monetary and fiscal policy, whereas the existing literature only focuses on either one or the other. Our main findings are twofold: fiscal shocks are relatively more important in explaining medium cycle fluctuations whereas monetary policy shocks are relatively more important in explaining business cycle fluctuations; and failing to recognize that both monetary and fiscal policy simultaneously affect macroeconomic variables might incorrectly attribute the fluctuations to the wrong source.
Keywords: Monetary policy, government spending, fiscal policy, business cycle fluctuations, medium cycle
JEL Classification: E1, E5, E6, C5
Suggested Citation: Suggested Citation
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