Work stream on monetary-fiscal policy interactions
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Occasional Paper Series
Monetary-fiscal policy interactions in the euro area
No 273 / September 2021
Disclaimer: This paper constitutes staff input into the Governing Council's deliberation in the context of the ECB's monetary policy strategy review. This paper should not be reported as representing the views of the Eurosystem. The views expressed are those of the authors and do not necessarily reflect those of the Eurosystem.
Acknowledgements
This report has been jointly produced by the Eurosystem work stream on monetary-fiscal policy interactions, comprising staff from the European Central Bank (ECB) and the national central banks (NCBs) of those countries that have adopted the euro. The report fed into the Governing Council's deliberations on the monetary policy strategy review 2020-21.
In addition to the co-leads, coordinators and contributing authors listed below, the work stream consisted of the following members: Ramon Adalid; Cláudia Braz; Marco Canu; Johannes Clemens; Bruno De Backer; Ettore Dorrucci; Michael Ehrmann; John Farrugia; Michael Ioannidis; Linas Jurksas; Nadine Leiner-Killinger; Alexander Mahle; Nigel Mcclung; Gasper Ploj; Lukas Reiss; G. Rimoldi; Mojca Roter; Giulia Sestieri; Andreja Strojan Kastelec; Martino Tasso; Nikolaos Ventouris; Stefan van Parijs; Karlis Vilerts. The authors would also like to thank Christophe Kamps, Luc Laeven, Massimo Rostagno and Frank Smets and for helpful comments on this report.
The work stream benefited from interesting presentations from and discussions with Marco Bassetto, Olivier Blanchard, Giancarlo Corsetti and Eric Leeper.
Co-leads of the work stream
Xavier Debrun
Nationale Bank van België/Banque Nationale de Belgique email: xavier.debrun@nbb.be
Guiseppe Ferrero
Banca d'Italia
email: giuseppe.ferrero@bancaditalia.it
Coordinators
Marien Ferdinandusse (Chapters 2 and 3, author of Chapter 2, author of Boxes 4 and 13
European Central Bank
email: marien.ferdinandusse@ecb.europa.eu
Sebastian Hauptmeier (Chapter 3, author of Section 3.3.2) European Central Bank
email: sebastian.hauptmeier@ecb.europa.eu
Additional contributing authors
Mario Alloza (author of Box 13)
Banco de España
Krzysztof Bańkowski (contributor to Sections 2.5, 3.3.2.2 and 3.3.2.3, author of Box 6, contributor to Box 18)
European Central Bank
Jean Barthélemy (contributor to Sections 1.1 and 1.2, author of Box 2)
Banque de France
Tilman Bletzinger (author of Box 3)
European Central Bank
Dennis Bonam (author of Boxes 4 and 17)
De Nederlandsche Bank
Othman Bouabdallah (author of Box 18)
European Central Bank
Pablo Burriel (author of Box 19)
Banco de España
Maria Campos (author of Box 7)
Banco de Portugal
José Cardoso da Costa (author of Box 2) Banco de Portugal
Cristina Checherita-Westphal(author of Boxes 7 and 11) European Central Bank
Bernadette Chmelar (author of Box 15)
European Central Bank
Jacopo Cimadomo (contributor to Section 2.4.2, author of Box 6)
European Central Bank
Kai Christoffel (contributor to Sections 2.5, 3.3.2.2 and 3.3.2.3) European Central Bank
Klaus Masuch European Central Bank
email: klaus.masuch@ecb.europa.eu
Isabel Vansteenkiste
European Central Bank
email: isabel.vansteenkiste@ecb.europa.eu
Leopold von Thadden (Chapters 1 and 3, author of Sections
1.3 and 3.3, author of Box 3) European Central Bank
email: leopold.von_thadden@ecb.europa.eu
Chloé Derouen (contributor to Box 18)
European Central Bank
João Domingues Semeano (author of Box 11)
European Central Bank
Jens Eisenschmidt (contributor to Section 3.3.2.1) European Central Bank
Thomas Faria (contributor to Sections 2.5, 3.3.2.2 and 3.3.2.3) European Central Bank
Maximilian Freier (author of Box 7)
European Central Bank
Gabriele Galati (author of Box 17)
De Nederlandsche Bank
José Garcia (contributor to Part 2)
European Central Bank
Sándor Gardó (author of Box 8)
European Central Bank
Rafael Gerke (author of Box 12)
Deutsche Bundesbank
Felix Hammermann (author of Box 5)
European Central Bank
Stephan Haroutunian (contributor to Section 3.2.2) European Central Bank
Benjamin Hartung (author of Box 8)
European Central Bank
Pascal Jacquinot (author of Boxes 4 and 13)
European Central Bank
Christophe Kamps (author of Box 6) | Steven Poelhekke (author of Box 17) |
European Central Bank | University of Auckland/Vrije Universiteit Amsterdam |
Iván Kataryniuk (author of Box 10) | Sebastiaan Pool (author of Section 3.2.1) |
Banco de España | European Central Bank |
Julia Körding (author of Box 9) | Doris Prammer (author of Box 7) |
European Central Bank | Oesterreichische Nationalbank |
Tommy Kostka (contributor to Section 3.3.2.1, author of Box 15) | Marzia Romanelli (author of Box 7) |
European Central Bank | Banca d'Italia |
Bartosz Maćkowiak (author of Sections 1.1 and 1.2) | Joost Röttger (author of Box 12) |
European Central Bank | Deutsche Bundesbank |
Falk Mazelis (contributor to Section 3.3.2.1, author of Box 15) | Stephan Sauer (author of Boxes 9 and 15) |
European Central Bank | European Central Bank |
Marco Marrazzo (author of Box 15) | Katja Schmidt (author of Box 13) |
European Central Bank | Banque de France |
Carlos Montes-Galdón(author of Box 16) | Sebastian Schmidt (author of Sections 1.1 and 1.2) |
European Central Bank | European Central Bank |
Philip Muggenthaler (author of Box 7) | Fabian Schupp (contributor to Box 18) |
European Central Bank | European Central Bank |
Carolin Nerlich (author of Box 7) | Ralph Setzer (contributor to Section 2.3) |
European Central Bank | European Central Bank |
Galo Nuño (contributor to Sections 1.1 and 1.2, author of Box 1) | Kamila Slawinska (author of Box 7) |
Banco de España | European Central Bank |
Talga Ozden (author of Box 17) | Agnieszka Trzcinska (contributor to Section 2.4.2) |
De Nederlandsche Bank | European Central Bank |
Alari Paulus (author of Box 7) | Vilém Valenta (author of Box 18) |
Eesti Pank | European Central Bank |
Alexandru Penciu (author of Box 15) | Andreea Vladu (author of Box 18) |
European Central Bank | European Central Bank |
Anamaria Piloiu (author of Box 9) | Guido Wolswijk (author of Box 5) |
European Central Bank | European Central Bank |
Massimiliano Pisani (author of Box 14) | |
Banca d'Italia |
This report is part of a set of papers within the ECB's Occasional Paper Series, related to the ECB's Strategy review 2020-21. This set includes the following papers:
Set of Occasional Papers related to the ECB's Strategy review 2020-21
No 263, "The implications of globalisation for the ECB monetary policy strategy". No 264, "Inflation expectations and their role in Eurosystem forecasting".
No 265, "Inflation measurement and its assessment in the ECB's monetary policy strategy review". No 266, "Digitalisation: channels, impacts and implications for monetary policy in the euro area".
No 267, "Review of macroeconomic modelling in the Eurosystem: current practices and scope for improvement". No 268, "Key factors behind productivity trends in EU countries".
No 269, "The ECB's price stability framework: past experience, and current and future challenges".
No 270, "Non-bank financial intermediation in the euro area: implications for monetary policy transmission and key vulnerabilities". No 271, "Climate change and monetary policy in the euro area".
No 272, "The role of financial stability considerations in monetary policy and the interaction with macroprudential policy in the euro area".
No 273, "Monetary-fiscal policy interactions in the euro area".
No 274, "Clear, consistent and engaging: ECB monetary policy communication in a changing world". No 275, "Employment and the conduct of monetary policy in the euro area".
No 276, "The mandate of the ECB: Legal considerations in the ECB's monetary policy strategy review". No 277, "Evolution of the ECB's analytical framework".
No 278, "Assessing the efficacy, efficiency and potential side effects of the ECB's monetary policy instruments since 2014".
No 279, "The need for an inflation buffer in the ECB's price stability objective - the role of nominal rigidities and inflation differentials". No 280, "Understanding low inflation in the euro area from 2013 to 2019: cyclical and structural drivers".
Contents
Abstract | 3 | |
1 | A conceptual framework for discussing and rethinking the | |
conventional view | 5 |
1.1 Pre-global financial crisis consensus on monetary and fiscal
policy | 5 |
1.2 Refinements and novel aspects of monetary-fiscal policy interactions in an environment characterised by a single
central bank and a single fiscal authority | 6 | |
Box 1 | Understanding the impact of fiscal policy on monetary policy | |
transmission in a HANK model with a lower bound | 9 | |
Box 2 | Central bank solvency and mechanisms for safeguarding | |
central bank independence: a brief literature review | 12 |
1.3 Aspects of monetary-fiscal policy interactions specific to
monetary unions (characterised by a single central bank and | |||
many fiscal authorities) | 15 | ||
Box 3 The conventional monetary and fiscal policy mix in a | |||
monetary union, with an extension to lower bound episodes | 18 | ||
Box 4 Fiscal capacity in a monetary union | 25 | ||
2 | Monetary-fiscal policy interactions in EMU until end-2019 | 28 | |
2.1 | The architecture of EMU when the euro was launched | 28 | |
Box 5 Lessons learnt from the prohibition of monetary financing | 30 | ||
2.2 | The ECB's monetary policy: a short overview | 31 | |
Box 6 Fiscal policy and inflation in the euro area: a VAR-based | |||
analysis | 34 |
2.3 Asymmetries in the euro area and the role of structural
policies | 36 |
2.4 The sovereign-bank nexus and the sovereign debt crisis in
the euro area | 38 | |
Box 7 | Automatic fiscal stabilisers in the euro area: size, evolution | |
and effectiveness | 40 | |
Box 8 | The sovereign-bank-corporate nexus | 43 |
ECB Occasional Paper Series No 273 / September 2021 | 1 |
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ECB - European Central Bank published this content on 21 September 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 September 2021 08:21:07 UTC.
