Fiscal and Monetary Interactions

• Grant number: 24/23446-9
• Support Opportunities: Scholarships in Brazil - Doctorate (Direct)
• Start date: March 01, 2025
• End date: November 30, 2027
• Field of knowledge: Applied Social Sciences - Economics - Fiscal and Monetary Policies
• Principal Investigator: Marco Antonio Cesar Bonomo
• Grantee: Matheus Mauricio Costa do Patrocinio
• Host Institution: Instituto de Ensino e Pesquisa (Insper). São Paulo , SP, Brazil
• Associated research grant: 24/13435-0 - Identification and Propagation of Shocks in the Brazilian Economy, AP.R

Abstract

This research will investigate, from an empirical perspective, how different interaction regimes between fiscal and monetary policy affect their dynamic effects on the economy. Using state-dependent local projections, it aims to estimate the impacts of fiscal and monetary policy shocks under different interaction regimes. To achieve this, a new empirical metric will be developed to identify such regimes, based on the co-movement between interest rate surprises and revisions in inflation expectations around monetary policy decisions.The proposed metric differentiates regimes as follows: under monetary dominance, contractionary monetary shocks reduce inflation, whereas under fiscal dominance, inflation increases, reflecting the absence of fiscal adjustments to stabilize public debt. The metric will be validated through simulations in structural models and narrative evidence.The research is expected to make significant contributions by providing new empirical evidence on the interactions between fiscal and monetary policy, as well as by introducing an innovative analytical tool. Thus, the study will enhance understanding of the effectiveness of these policies in different institutional contexts.Within the scope of the APR, this research lies at the intersection of the subprojects "Austeridade expansionista? O canal de prêmio de risco da política fiscal" (Subproject 1) and "Efeitos de política monetária no Brasil" (Subproject 3). Additionally, the researcher will contribute to general activities of the APR.