ESG scores and the response of the S&P 1500 to monetary and fiscal policy during the Covid-19 pandemic

Introduction. Monetary and fiscal policy are the main levers of the state's influence on the economy when prompt response to a crisis caused by internal or external shocks is required. This determines the importance of theoretical substantiation of the main aspects of coordination of monetary and fiscal regulation, when the coordinated work of key state institutions is important. The purpose of the article is to clarificate the main theoretical aspects and practical mechanisms of implementing the monetary and fiscal policy of the state through the prism of interaction and coordination of the impact on the economy. Results. The role of monetary and fiscal regulation as the main directions of state influence on the economy is outlined. The modern financial theories are analyzed, which indicates serious attention paid to the coordination of fiscal and monetary policy. Monetary and fiscal regulation are considered as two components of the institutional mechanism for ensuring macrofinancial stabilization. Factors of institutional interdependence of state institutions in the process of implementing fiscal and monetary policy are systematized. Four main scenarios of combination of monetary and fiscal policy measures are defined, which determines the restrictive or expansionary nature of the impact on the economy. Factors of coordination between fiscal and monetary policy methods are considered. The elements of the technical organization of the interaction of monetary and fiscal policy, which require practical filling of the mechanism of state regulation, are substantiated. Perspectives. An important direction of scientific research for the future is the search for ways to optimize the mechanism of interaction at the institutional level of monetary and fiscal policy in the system of state regulation of the economy.

Monetary and fiscal policy interactions: Evidence from emerging European economies

There is a body of research that focuses on the examination of long-run relations between energy–environment–economic growth, and there is also a new type of recent research that focuses on the effects of monetary and fiscal economic policies on the environment. There is a research gap that exists due to omitting the effects of technology and energy policies, and this paper addresses this gap, in addition to merging both fields mentioned above, by including the asymmetric effects of fiscal and monetary policies. To explore the relations between fossil fuel and renewable energies, environmental pollution, and economic growth, in addition to including the roles of energy, technology, monetary, and fiscal policies, this paper employs novel NBARDL and NBARDL Granger Causality methods for yearly data assessments in the USA. The empirical findings of the paper point to the asymmetric impacts of monetary and fiscal policies in the short- and long-run. Interestingly, both contractionary and expansionary fiscal policies lead to higher CO2 emissions. Contractionary monetary policies exert a downward pressure on CO2 emissions, and if expansionary, the monetary policy causes environmental degradation. As an important policy, the energy policy emerges as a potent tool for reducing carbon emissions through not only renewable energy, but as a greater impact through energy efficiency and technology. Therefore, this paper highlights the importance of technology policies exhibiting varying relationships with environmental pollution, featuring unidirectional or bidirectional causality patterns. Renewable energy, energy efficiency combined with adequate technology, and energy policies are determined to have pivotal roles in CO2 emissions outcomes. Such policies should focus on cleaner energy sources accompanied by energy efficiency technologies in the USA to curtail environmental impacts; technology policies are vital in fostering innovations and encouraging cleaner technologies. The policy recommendations include an effective combination of monetary, fiscal, technology, and energy policies, backed by a strong commitment to achieving energy efficiency and renewable energy to mitigate environmental pollution and to contribute to sustainable development.

ABSTRACT: The purpose of the study is to analyze the relative efficacy of monetary and fiscal policies in fostering economic growth in Bangladesh concerning predictability, speed, and magnitude. Moreover, it aims to find the relationship between the economic boom of Bangladesh and two measures of macroeconomic management i.e., monetary and fiscal policy. The ARDL model and bound test are applied to examine the long-term link between monetary policy, fiscal policy, and economic growth. Data is obtained from the World Development Indicator (WDI) for Bangladesh for the period 1974 to 2022. Several diagnostics tests like CUSUM and CUSUMQ are used to identify both the strengths and weaknesses of the models. The findings demonstrated a long-term correlation between the two policies and economic growth. According to the calculated short-run coefficients, the short-term effect of fiscal policy is mentionable but the effect of monetary policy is negligible in the short term. But over time, the immediate effects become noteworthy. The long-term outcomes indicated that both fiscal and monetary policies have a favorable and substantial long-term impact on economic growth. The result shows fiscal policy is more effective compared to monetary policy for making Bangladesh, a role model of Bangladesh. Furthermore, all the diagnostics tests showed the stability of the estimated ARDL model. Expansionary fiscal and monetary policies lead to higher government spending and an increase in the money supply, which raises GDP levels. Conversely, if government spending and the money supply decline (contractionary fiscal and monetary policies), the GDP level falls. As a result, this study suggests using expansionary policies to boost Bangladesh’s economy.

Fiscal and monetary policy plays a vital role in macroeconomic stability. The Keynesians have emphasized the fiscal policy whereas the Monetarists supported interventions under monetary policy. In fact, these policies are interrelated and influence each other. The expansionary fiscal policy overheats the economy and reduce the effectiveness of monetary policy. The use of the appropriate mix of tools under fiscal and monetary policy is of immense importance for economic stability under country specific economic conditions. Therefore, the instant study was meant to look at the effectiveness of monetary and fiscal policy instruments in stabilization of Pakistan’s economy. The data was collected from secondary sources of Government of Pakistan from 1986 to 2022. The government expenditure was analyzed to be a proxy for fiscal policy whereas money supply for monetary policy. The study employed Impulse Response Function (IRF) and Variance Decomposition (VDC) in Vector Autoregressive (VAR) Model. The findings of IRF confirmed the impact of money supply on economic growth in Pakistan. At first, the money supply affected the GDP negatively but after 3rd year, its impact was changed to be positive and it was rising sharply. It indicated that the expansionary monetary policy was effective in the medium and long run in Pakistan. It was concluded that the fiscal policy appeared to be relatively more effective for its contribution towards economic growth as compared with monetary policy.

This research examined the effects of monetary and fiscal policies on stock returns in Nigeria. The researchers utilized ex-post facto research design using the time series data of the annual market values of All Share Index (ASI) of the Nigerian Stock Exchange (NSE). It was yearly data on the various monetary policy and fiscal policy variables obtained from the Central Bank of Nigeria Statistical Bulletins covering from 1985 to 2017. The result of the cointegration test reveals a long-run relationship between monetary variables and stock returns. Meanwhile, the overall result shows that monetary policy has a significant effect on stock return. However, there is no long-run relationship between fiscal policy variables and stock returns. Meanwhile, the result of the Unrestricted Vector Autoregression model shows that fiscal policy has a significant effect on stock prices in Nigeria. On the other hand, a long-run relationship exists between monetary policy, fiscal policy, and stock returns. It has a significant effect on stock returns in Nigeria. This implies that monetary and fiscal policies have a significant effect on stock returns in Nigeria. It is recommended that there is a need for the federal government to harmonize fiscal and monetary policies in the same direction and to equally design policies that promote a free market for the growth of the Nigerian economy.

Japan’s encounter with deflation and near‐zero‐interest short‐term interest rates in the 1990s led to a surge in research on the implications of the zero lower bound (ZLB) on nominal interest rates for monetary policy around the end of that decade. Based on model simulations, the literature at that time identified a number of key implications of the ZLB (see Orphanides and Wieland [2000], Reifschneider and Williams [2000, 2002], Eggertsson and Woodford [2003], and references therein). First, with low inflation targets of the kind followed by many central banks, the ZLB will frequently be a binding constraint on monetary policy. That is, Japan’s example is not an outlier but rather a harbinger for the future. Second, at inflation targets of 1% or lower, lowering the inflation target comes at a cost of higher variability of output and inflation, although the effects on inflation variability are relatively small. This analysis provides an argument for maintaining a positive inflation target cushion above 1%. Third, in rare instances of severe prolonged recessions accompanied by deflation, standard open market operations will be insufficient to bring the inflation rate back to target, andalternative sources of stimulus to the economy, such as fiscal policy, will be needed. Fourth, central banks can significantly reduce the effects of the ZLB onmacroeconomic stability by modifying their policy actions and communication to the public when the ZLB threatens to constrain policy. Specifically, policies that cut rates aggressively when deflation is a risk and promise to temporarily target a higher rate of inflation following episodes where the ZLB binds were found to greatly reduce the effects of the ZLB in model simulations. In the decade since this researchwas initiated, the ZLB has gone froma theoretical issue applying to Japan to one that plagues many industrialized economies. Indeed, an era of overwhelming confidence in monetary policy’s power to tame the business cycle while delivering low and stable inflation has been replaced by fears that the global economy could

This chapter analyses the interaction between monetary and fiscal policy in detail. We want to understand why there is no clear relation between debt and inflation. The current price level and inflation is not determined just by current monetary policy. Expectations about how monetary policy evolves in the near and distant future play a crucial role. Since monetary policy actions frequently have some fiscal impact, the effectiveness of monetary policy also depends on the response of fiscal policy. With government debt usually being denominated in nominal terms, movements in the price level may have substantial impact on the real value of debt. The real value erodes in periods of hyperinflation; it increases in periods of deflationary spirals. We distinguish between different regimes, depending on who is the active player. In one regime, fiscal policy automatically adjusts such that monetary policy is allowed to control inflation. Here monetary policy is active, free to pursue its objectives, with fiscal policy assumed to be passive, being constrained by central bank actions. However, there can also be an alternative regime, with active fiscal and passive monetary policy.

The relative effectiveness of fiscal and monetary policies in promoting economic growth is not sufficiently examined at the empirical level for developing countries, including Egypt in particular. Hence, this paper is the first attempt to empirically examine the relative effectiveness of fiscal and monetary policies in promoting Egypt’s output growth utilizing a time-series data set over the time-period (1960–2019). The study employs the Autoregressive Distributed Lag (ARDL) Bounds testing approach to cointegration to investigate the long run and short run effects of fiscal and monetary policies on Egypt’s output growth under a modified version of the St. Louis equation model. The study finds that both monetary and fiscal policies have a positive impact on the economic activity in the long run. However, while monetary policy seems to be more effective than fiscal policy in stimulating the growth rate of nominal GDP, fiscal policy tends to have a larger, more predictable and faster impact than monetary policy on the real economic activity. Accordingly, Egypt’s policymakers are advised to follow the Keynesian’s prescription in terms of increasing the reliance on fiscal policy compared to monetary policy to achieve macroeconomic stability in both the short run and long run.

The determination for this study was to ascertain if fiscal and monetary policies are cooperating or rather conflicting with each other in Nigerian economy. Government disbursement and growth of money stock were used to denote fiscal and monetary policy variables. Two reduced form equations of monetary and fiscal policies were specified from underlying structural model. This yielded fourteen RF parameters in contrast to eleven structural parameters and so we had system of over-identification. These prompted use of IV estimators such as GMM and 3SLS. Estimates show similar findings for both estimators as we found evidence that fiscal policy does not respond favourably to monetary policy as monetary policy was found to have an insignificant effect on the fiscal policy. More so, fiscal policy does not respond to lag effect of monetary policy. Relatively, monetary policy responds favourably to fiscal policy. The lag effect of money supply was also found to have a significant impact on money supply. Empirical finding so upholds that Nigerian economy is fiscally overriding notwithstanding money being an integral part of all macroeconomic variables. Significance of lag effects of both fiscal and monetary policy is reflection that implementation process of both policies is excessively time overshadowing. Consequently, there is need for building well-organized units of fiscal and monetary authorities that can accelerate implementation process of these policies.

This study investigates the comparative effect of fiscal and monetary policy on economic growth in Pakistan using annual time series data from 1981 to 2009. The cointegration result suggests that both monetary and fiscal policy have significant and positive effect on economic growth. The coefficient of monetary policy is much greater than fiscal policy which implies that monetary policy has more concerned with economic growth than fiscal policy in Pakistan. The implication of the study is that the policy makers should focus more on monetary policy than fiscal to enhance economic growth. The role of fiscal policy can be more effective for enhancing economic growth by eliminating corruption, leakages of resources and inappropriate use of resources. However, the combination and harmonization of both monetary and fiscal policy are highly recommended.

This paper extends the results presented by Harvie (1990) and Harvie and Maleka (1991), using a similar theoretical and simulation framework to analyse the macroeconomic adjustment processes arising for an economy experiencing a temporary period of oil production. Similar assumptions to those in the aforementioned papers, regarding actual oil production, permanent oil revenues and the net export/import of oil, as well as to developments in the price of that oil under alternative wage adjustment assumptions are made. Here, however, emphasis is placed on developments in the current account, as reflected in foreign asset stock movements, after oil production ceases, as well as on the role that monetary, fiscal or fiscal/monetary policy can play in influencing current-account developments during this same period. Both Harvie (1990) and Harvie and Maleka (1991) conclude that, after a period of temporary oil production, the current account is likely to deteriorate. It is the contention here that the authorities will be concerned with such a potential development, and in the role which fiscal and/or monetary policy can play in alleviating such an effect. The results presented suggest that, to improve the performance of the current account, irrespective of the wage adjustment mechanism operative, after oil production ceases, the major thrust of macroeconomic policy should operate through fiscal rather than monetary policy. However developments in non-oil output would be influenced by the wage adjustment mechanism. With wage indexation, a tight fiscal policy after oil production ceases leads to a higher level of non-oil output than in the no policy response case, or one where monetary policy alone is used. With no wage indexation, the use of monetary and/or fiscal policy leads to lower levels of non-oil output. Hence the extent of wage indexation is important for this latter variable. The use of fiscal policy also has the added benefit of contributing to a lower consumer price level, again irrespective of the operative wage adjustment mechanism. If the emphasis of policy operates through monetary policy this paper suggests that, irrespective of the wage adjustment mechanism, the current-account problem will be exacerbated since foreign assets stocks will be lower. In addition, non-oil output and consumer prices will be lower. Hence potentially important policy prescriptions regarding the operation of fiscal and/or monetary policy for an economy after a temporary period of oil production, can be derived from this paper.

s from short-run shocks, and which is capable of highlighting many important interactions between fiscal and monetary policies. We look at both the steady-state and the stability properties of the system. The analysis is especially relevant for cases where fiscal and monetary policies are decided with reference to different objectives, possibly by different authorities. It may be less useful for cases which one type of policy (e.g., fiscal policy) is given absolute priority (e.g., the fiscal authority behaves as a Stackelberg leader) and monetary authorities are forced to behave ways that ensure the maintenance of fiscal policy. The latter was what Sargent and Wallace had mind when they derived the path of the money stock and of inflation necessary to maintain fiscal policy settings [7]. The interesting literature that emerged along those lines was surveyed by Haliassos and Tobin [6]. The analysis introduces some new perspectives on policies aimed at attaining an acceptable inflation rate over the longer run. When a monetary authority maintains a target rate of inflation over the longer run, it also fixes the long-run real rate of return on money which is directly linked to inflation when money bears a zero (or an institutionally fixed) nominal interest rate. As a result, the size of the long-run inflation target generally affects the equilibrium composition of the total government debt, i.e., the ratio of money to government bonds. A sustainable monetary policy is one which not only fixes the rate of growth of nominal money to equal the target inflation rate plus the rate of growth of real GNP, but which additionally ensures that the equilibrium composition of government debt will be attained over the longer run. Otherwise, the system does not get onto its steady state, and the package of fiscal and monetary policies is not sustainable over the longer run. From this point of view, simple monetary policy rules targeting inflation, such as Friedman's x % rule, are not general sustainable, because they only fix the slope of the money path, without ensuring that the composition of government debt gets to the appropriate steady-state level. This point has implications for the interaction between fiscal and monetary policies. The steady-state equilibrium composition of government debt is not influenced only by the size of the inflation target, but also by fiscal policy settings. A change fiscal policy alters the equilibrium composition of government debt that the monetary authority has to bring about through its open market operations if it does not want to abandon its inflation target. Changes fiscal policy for a given inflation target also have effects on the long-run capitaloutput ratio, unless the conditions for debt neutrality are met. With regard to government spending on goods and services, G, the question is whether crowding out of private capital is unavoidable. The possibility that capital may be crowded in by higher ratios G/Y has been noted by Tobin and Buiter and by Friedman, but not under inflation targeting [9; 3; 4]. In fact, the present paper shows that crowding may still be observed situations where the mechanisms identified by the previous authors cannot operate. In particular, the mechanism whereby an increase government expenditure leads to crowding existing models is by raising the steady-state rate of inflation, thus lowering the real rate of return on money. This produces effects on the demand for money and for government bonds that create room portfolios for the extra holdings of capital. However, when inflation is set at a target level, this channel is not open. What can still happen is higher short-run inflation the transition to the steady state, so that the level of the steady-state price path ends up being higher while its slope is still equal to the long-run inflation target. This possibility is demonstrated here. The above effects on the capital-output ratio presuppose that complete debt neutrality does 1011 This content downloaded from 157.55.39.209 on Sat, 14 May 2016 06:30:33 UTC All use subject to http://about.jstor.org/terms 1012 Michael Haliassos not hold. If it does, then cuts current taxes would have no effect on the capital-output ratio. The work of Barro [2] inspired a voluminous theoretical literature on debt neutrality (or Equivalence). Haliassos and Tobin [6] present a comprehensive account of the literature exploring the restrictive conditions under which the neutrality theorem holds. The present analysis of sustainability adds a new dimension to the debate. Suppose that agents believe debt neutrality and save the current tax cut, so as to raise their bequests to descendants and to eliminate any effects on their utility arising from future tax increases. Then, the question is whether taxes will indeed have to go up the future, i.e., whether current fiscal policy is sustainable or not. If it is, Ricardian behavior on the part of agents is not rational, since the expectation that taxes will have to rise the future leads to behavior which violates it. It turns out that Ricardian equilibria are not necessarily rational, while one can also construct non-Ricardian equilibria which are rational. Section II presents an illustrative model for analyzing sustainable fiscal and monetary policies. Section III investigates the requirements for a sustainable monetary policy targeting inflation. Section IV discusses the interactions of fiscal and monetary policies and the implications of inflation targeting for crowding out or crowding of private capital. Section V investigates the rationality of Ricardian behavior. Section VI offers concluding remarks. The Appendix contains a formal derivation of comparative statics and stability results. II. An Illustrative Model The economy to be considered is one which fiscal policy rules are decided with reference to different objectives from those of monetary policy, which is aimed at maintaining a target inflation rate over the longer run. According to the notion of sustainability introduced here, if the combination of fiscal and monetary policies is unsustainable, the economy cannot attain a steady state by following those policies. This is either because a steady state does not exist or because it is not stable. If the government persists following those policies, then the economy is likely to get onto an unstable trajectory. It is difficult to describe precisely what will be observed if this is allowed to happen. A plausible doomsday scenario might be that we would experience a stock market crash, for example. However, it seems more likely that policy authorities will not allow the economy to reach such a point. After realizing that their policies are unsustainable, they are likely to reverse them, e.g., by abandoning their inflation target or by reducing the deficit-to-GNP ratio. Here, we highlight some general principles for detecting unsustainable policy mixes. The points can be made by employing a relatively general macroeconomic structure which explicitly allows for asset accumulation. Consider a closed economy with three assets: high-powered money, H, government bonds of total nominal value B, and claims to homogeneous physical capital K, one for each unit of capital. All asset stocks are measured per efficiency unit of labor. The fiscal policy instruments are (i) the ratio of real government expenditure on goods and services, G/Y, and (ii) the average tax rate, t, which is the ratio of total taxes net of transfers (T) to GNP. The primary budget deficit to GNP ratio is then G/Y t. Fiscal authorities issue bonds to finance the total budget deficit, while the monetary authorities determine the degree of monetization and the overall composition of accumulated government debt, H + B, through their open market exchanges of money for bonds.' 1. This is different from saying that the monetary authorities can exogenously fix the fraction of the deficit which is monetized. It will be seen below that this fraction is dictated by inflation targeting steady state. This content downloaded from 157.55.39.209 on Sat, 14 May 2016 06:30:33 UTC All use subject to http://about.jstor.org/terms SUSTAINABILITY, INFLATION TARGETING, AND CROWDING OUT

The paper explored the interaction of monetary and fiscal policy through game theory. In the first part of the paper it isin short presented theoretical basis of fiscal and monetary policy, and then explained the theoretical part of game theory also in short. After theoretical part, the analysis was conducted based on the collected data and then the results of the paper are presented. A function of payments for monetary and fiscal policy have been created on the basis of data inflation, unemployment rate, total liquidity and the rate of government spending in the Republic of Croatia. Multiple linear regression, which is processed using software solutions Eviews, derived parameters for independent variables. In this way, holders of monetary and fiscal policy can decide on quantities of independent variables, and based on that, determine their strategy. The obtained result, based on the functions of payments for monetary and fiscal policy, generated the matrix of payments. Solving the matrix of payments resulted with non-dominated solutions. For solving the problem, PROMETHEE method has been applied. Analysing the game by using the PROMETHEE method, it generated optimal solutions in terms of assumption when a greater impact on the economy, in this case on the inflation and unemployment, has the fiscal policy and in terms of assumption when a greater impact on the economy has monetary policy. As the optimal results we obtained only two strategies although the game has been repeated in many stages.

The purpose of this paper is to analyze and discuss the coordination of fiscal and monetary policies in EMU. In section 2, we develop a framework for studying monetary and fiscal policy in a monetary union to explore the implications of the common currency for policy coordination. We show that there is little need for coordinating monetary and fiscal policies in the long run. In section 3, we study the interaction of monetary and fiscal policies in the short run. A monetary policy firmly committed to price stability at the EMU level implies that the central bank controls aggregate output at the euro-area level, while national fiscal policies determine the distribution of aggregate demand across the participating countries. Thus, national governments are engaged in a purely distributional game with inefficient outcomes unless policies are coordinated. If monetary policy also pursues a goal of output stabilization, policy coordination should include the central bank together with the fiscal authorities. We also show that the proposal to restrict fiscal policies to the operation automatic stabilizers at the national level, which is now often made in EMU, does not solve the issue of policy coordination. Instead, it worsens the situation of the central bank unless automatic stabilizers are identical in all member economies. In section 4, we review the existing mechanisms for policy coordination and show that they are deficient, since they focus on the long run rather than the short run and largely ignore the interdependence of national economic policies and the ECB’s monetary policy. Section 5 concludes. (This abstract was borrowed from another version of this item.)