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ID:
186216
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Summary/Abstract |
The existing literature on macroeconomic policy research is mainly concerned with the impact of a single monetary or fiscal policy on China's macroeconomic fluctuations in a closed economy. However, the effect of a mix of monetary and fiscal policies has been neglected. This paper addresses this issue with an open economy dynamic stochastic general equilibrium model. It applies impulse-response and welfare analyses to explore the stabilization effect of various mixes of monetary and fiscal policies. The results show that the optimal monetary policy and fiscal policy mix varies in different cases. When government spending shocks happen, the aggressive fiscal policy and passive monetary policy would be the best choice. In contrast, for domestic interest rate shocks, foreign interest rate shocks, and foreign consumption shocks, the passive fiscal policy and aggressive monetary policy are more applicable. This article explains China's economic fluctuations and highlights the importance of mix of monetary and fiscal policies in the face of different shocks.
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2 |
ID:
093663
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Publication |
2009.
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Summary/Abstract |
This paper studies the sources of macroeconomic fluctuations in a typical small open economy, Turkey, using a structural vector autoregressive (SVAR) model. The study finds that supply-side shocks are the main source of output fluctuations in the long run, explaining almost half the variance of domestic output. However, most of the short-run variability in domestic output is dominated by relative demand shocks. Aggregate demand shocks do not appear to play any significant role in output fluctuations in the long run. Changes in fiscal policy play a moderate role in determining the real exchange rate in the short term, while changes in world output and prices of imported inputs are the major determinants of the long-term real exchange rate. The long-run price variations are mainly due to oil price and world output shocks.
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