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Explicit fiscal and monetary policy interactions in a small open economy

Oye, Queen-Esther and Alege, P. O. and Olomola, P. A. (2018) Explicit fiscal and monetary policy interactions in a small open economy. International Business Information Management Association Conference, IBIMA. pp. 7035-7043.

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The issue of fiscal and monetary policy interactions has become relevant arising from economic events like the formation of the European Monetary Union and the aftermath of the global financial crisis. This study characterizes the nature of fiscalmonetary interaction and gauges its joint transmitted effect on inflation and output in Nigeria. The interactions are examined by calibrating and simulating a New Keynesian Dynamic Stochastic General Equilibrium (NK DSGE) model that includes an interaction effect equation. The explicit policy interaction variable is essentially relevant to quantify the joint macroeconomic effect of mixing fiscal and monetary tools in an economy. The study found that both fiscal and monetary policies interact as strong complements. This means that when one policymaker implements the expansionary measure, the other policymaker corroborates this action using expansionary policy. The common variable that explicitly captures the interaction between fiscal policy and monetary policy shows that the joint process of both policies has a weak effect on output and inflation. This implies stabilization policies are suspected to be insignificant in accounting for the outcomes in output and inflation in Nigeria

Item Type: Article
Uncontrolled Keywords: DSGE; Fiscal and Monetary Policies; Policy Interactions
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
Divisions: Faculty of Law, Arts and Social Sciences > School of Social Sciences
Depositing User: Mrs Hannah Akinwumi
Date Deposited: 29 Jun 2021 10:13
Last Modified: 29 Jun 2021 10:13

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