Template-Type: ReDIF-Article 1.0
Author-Name: György Matolcsy
Author-Workplace-Name: Governor of the Magyar Nemzeti Bank
Author-Name: Dániel Palotai
Author-Workplace-Name: Magyar Nemzeti Bank
Author-Email: palotaid@mnb.hu
Title: The interaction between fiscal and monetary
policy in Hungary over the past decade and a half

Abstract: After the introduction of inflation targeting in 2001, fiscal and monetary policy were
out of sync for 12 years, which wreaked havoc on the Hungarian economy due to
the close relationship and interaction between the two. After 2013, on the back of
the fiscal reforms of the previous two to three years, and the subsequent monetary
policy reforms restored the desired harmony, which contributed to achieving
the objectives of the two parties, including price stability, financial stability and
sustainable fiscal policy, while also laying the groundwork for long-term growth.
This paper investigates which mix of fiscal and monetary policy has shaped the past
15 years and the channels through which fiscal and monetary economic policy of
different activity or dominance impacted each other, and the degree of success of
their (co)operation. The model devised by Eric Leeper provided the conceptual and
theoretical framework for our study, while the actual data and experiences are drawn
from Hungary’s economic history of the past 15 years. This paper also takes a closer
look at the causes, objectives, main elements and impact of the turnaround in fiscal
policy that took place between 2010 and 2013 and in monetary policy after 2013.


Classification-JEL: E52, E63, O23
Keywords: monetary policy, fiscal policy, economic policy consistency, fiscal
dominance theory, Hungarian economic history

Journal: Financial and Economic Review  
Pages: 5–32
Volume: 15
Issue: 2
Year: 2016
File-URL: http://english.hitelintezetiszemle.hu/letoltes/gyorgy-matolcsy-daniel-palotai-en.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:finrev:v:15:y:2016:i:2:p:5-32