Public debt, economic policy coordination and their effectiveness: lessons from the EMU and Brazil

ABSTRACT

In this paper, we investigated two cases of regions that used expansionary fiscal policies in recent years to increase short-term economic activity: The European Monetary Union and Brazil. Using impulse response functions, we estimated the effects of fiscal stimuli in a New-Keynesian framework provided by the Markov-switching dynamic stochastic general equilibrium (MSDSGE) model. We produced a set of regime-dependent results that suggest that 1) economic policies should be analyzed from a coordination perspective and 2) the selected cases need to make better use of fiscal instruments and to make more accommodative public debt decisions.

KEYWORDS:

• Policy coordination
• EMU
• Brazil
• regime dominance
• Markov switching
• MSDSGE

JEL CLASSIFICATION:

• E10
• E60
• O20

Disclosure statement

No potential conflict of interest was reported by the authors.