Fiscal Expansion Constraining Monetary Policy

BRAZIL ECONOMICS - Report 27 Sep 2013 by Marcelo Gazzano, Cristina Pinotti and Affonso Pastore
Executive Summary The objective of this work is to discuss the empirical evidence on the interference of fiscal policy in monetary policy. We compare various fiscal policy measures and find that the one that performs the best by far (including in comparison with the structural primary surplus, preferred by the Central Bank) is the fiscal stance metric suggested by the IMF. It measures the extent to which the policy is expansionary (or contractionary) according to its effects on aggregate demand, in comparison to a base year when the output gap was near zero and inflation was near the target...

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