Title: Endogenous monetary-fiscal regime change in the United States
Authors: Yoosoon Chang - Indiana University (United States)
Boreum Kwak - Martin Luther University Halle-Wittenberg and Halle Institute for Economic Research (Germany) [presenting]
Abstract: U.S. monetary and fiscal policy regime interactions in a regime switching model are estimated where regimes are represented by endogenous latent policy factors. Policy regimes interact strongly: shocks that switch one policy from active to passive tend to induce the other policy to switch from passive to active, consistent with existence of a unique equilibrium. In some periods, though, both policies are active and government debt grows rapidly. We also observe relatively strong interactions between monetary and fiscal policy regimes after the recent financial crisis. Latent policy regime factors exhibit patterns of correlation with macroeconomic time series, suggesting that policy regime change is endogenous.