- 주제: Quantifying the Fiscal Backing for Monetary Policy
- Abstract: I ask to what extent can data reveal whether fiscal policy responses to monetary policy shock are consistent with the theoretical adjustments necessary for successful inflation targeting monetary policy. I employ a DSGE model to estimate the fiscal response to a monetary policy shock under the active monetary and passive fiscal policy regime with US data during the conventional monetary policy era. A monetary contraction raising interest rate by 25 basis points reduces the market value of government debt by 0.8% because the bond price devaluation outweighs the fall in inflation. This reduction splits into a 1.7% decline due to higher discount rates and a 0.9% increase in expected primary surpluses. I also estimate a VAR that takes an agnostic view on the policy regime to examine how closely the data conforms to the theory. I find that the data accounts for 90% of the primary surplus response dictated by theory, suggesting that the data reveals the presence of fiscal backing for monetary policy.