Fiscal and Monetary Policy Interactions in a DSGE Model for the Romanian Economy

n this paper, we analyze the fiscal and monetary policy interactions using a DSGE model for an open economy. The model is estimated for the Romanian economy using Bayesian techniques and several important simulations are provided to offer valuable answers to the issues : what are the effects of fiscal policy and whether the build-up of government debt matters for the medium-term sustainability of the economy. We find that the accommodative monetary policy plays a significant role in the effects the fiscal policy exerts on the real economic activity. Moreover, the initial public debt ratio matters in model-based simulations and an above 60 per cent public debt makes the economy more vulnerable when cushioning the adverse shocks.