The interplay between monetary and fiscal policies in the EU

• Autor(a) principal: Afonso, António
• Data de Publicação: 2020
• Outros Autores: Sousa, Alexandre
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.5/20665
• topic: Monetary Policy; Fiscal Policy; Reaction Functions; Great Recession

We study the interactions between monetary and fiscal policies in the EU countries, for the period 1995-2019. Our results show notably that: i) the inflation rate has a relevant impact over the central banks’ decision making; ii) the cyclically adjusted primary balance reacts positively to increases in the level of government debt; iii) monetary policy reaction functions do not seem to take into consideration the cyclically adjusted primary balance; iv) fiscal policy, via the cyclically adjusted primary balance, seem to be affected by the short-term interest rate in a negative way. The global economic and financial crisis impacted negatively both the short-term nominal interest rates and the cyclically adjusted primary balance, however with a higher degree in the euro area.