Abstract
This paper assesses how and in what circumstances, fiscal consolidations are affected by monetary conditions, using data covering 24 OECD countries over the past 25 years, Focusing on fiscal consolidation “episodes”, it is found that these tend to occur when large budget deficits threaten sustainability and usually when other macroeconomic indicators -- inflation, the exchange rate and unemployment -- suggest a “crisis” situation. After controlling for these factors, the paper finds strong econometric evidence that consolidation efforts are more likely to be pursued and to succeed if the monetary policy stance is eased in the initial stages of the episode, thus contributing to offsetting the contractionary impact of fiscal tightening. However, the link is far from mechanical and there are also counter-examples where monetary easing was followed by aborted consolidation efforts. Central bank independence explicitly precludes direct responses of monetary policy to fiscal actions. However, the paper also provides evidence that the indirect reaction of monetary policy and financial markets to fiscal consolidation may be influenced by the quality of fiscal adjustment, as short and long-term interest rates are more likely to fall during episodes characterised by greater reliance on current expenditure cuts. While this means that causality runs both ways, the paper provides evidence that, even after controlling for this proxy of fiscal adjustment quality, changes in monetary stance do affect the chances that a fiscal retrenchment plan will be successfully pursued. Interactions entre la politique monetaire et budgetaire : L'effet des conditions monetaires sur les consolidations budgetaires Cet article, utilisant des donnees relatives a 24 pays de l’OCDE sur les 25 dernieres annees, examine comment et dans quelles circonstances des ajustements budgetaires sont affectes par les conditions monetaires. Les ajustements budgetaires interviennent le plus souvent lorsque d’importants deficits menacent la soutenabilite des finances publiques, ou lorsque d'autres indicateurs macroeconomiques -- inflation, taux de change ou niveau de chomage -- sont tres degrades. En controlant ces variables, l’article apporte des preuves econometriques robustes suivant lesquelles les efforts de consolidation budgetaire ont davantage de chance d’etre mis en oeuvre et couronnes de succes si la politique monetaire est accommodante dans la periode initiale de l’ajustement, contribuant ainsi a amortir l’effet defavorable pour la croissance du resserrement budgetaire. Le lien n’est cependant pas mecanique, comme l’atteste l’existence d’episodes de desserrement monetaire suivis d’un abandon des efforts d’ajustement fiscal. Par ailleurs, si l’independance des banques centrales fait explicitement obstacle a une reponse directe de la politique monetaire aux operations budgetaires, l’article montre que la qualite de l’ajustement fiscal peut indirectement influer sur les banques centrales et les marches financiers. Par exemple, les taux d'interet a court et long terme semblent se replier davantage si l’ajustement budgetaire prend la forme d’une maitrise stricte des depenses courantes. Au total, l’influence entre l’ajustement budgetaire et la conduite de la politique monetaire est reciproque mais l’article montre que, meme en controlant la qualite d'ajustement budgetaire, la politique monetaire continue a influencer la probabilite d’une consolidation des finances publiques d’etre menee a bien.
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