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Entrepreneurship and Sustainability Issues Open access
Journal Impact FactorTM (2024) 1.3 Q3
Journal Citation IndicatorTM (2024) 0.26 Q4
Received: 2025-02-12  |  Accepted: 2025-05-16  |  Published: 2025-06-30

Title

Policy mix under stress: review of economic reactions to fiscal and monetary policies using DSGE


Abstract

The paper aims to review the studies with a particular emphasis on the response of selected economies to the central bank's monetary policy and the government's fiscal policy during various economic shocks developed using DSGE models. Countries generally have different financial structures, institutional frameworks, and macroeconomic policy transmission mechanisms. The authors better explain why some economies respond more effectively to central bank and government actions than others. The article uses a bibliometric analysis of the policy mix and DSGE, and presents a case study of theoretical policy mix modelling using DSGE. The central bank's monetary policy and the government's fiscal policy play a key role in stabilising the economy. Analysing their impact in different economic conditions allows for identifying optimal strategies depending on the nature of shocks. The study shows that the response of economies to various shocks (e.g., financial crises, pandemics, supply shocks) allows us to assess the effectiveness of stabilisation policies and their long-term consequences. DSGE models, extended with fiscal reaction functions and considering household financial constraints, help us understand how monetary and fiscal policy interactions affect economic fluctuations and inflation. A properly selected combination of monetary and fiscal policy can stabilise the economy. Still, its effectiveness depends on the type of economic shocks and the degree of activity of both policies.


Keywords

policy mix, DSGE models, monetary policy, fiscal policy, financial crisis, COVID-19, equilibrium


JEL classifications

E52 , E62 , E12 , E40 , D50


URI

http://jssidoi.org/jesi/article/1325


DOI


Pages

477-496


Funding


This is an open access issue and all published articles are licensed under a
Creative Commons Attribution 4.0 International License

Authors

Stawska, Joanna
University of Lodz, Lodz, Poland https://www.uni.lodz.pl
Articles by this author in: CrossRef |  Google Scholar

Mourao, Paulo Reis
University of Minho, Braga, Portugal https://www.uminho.pt
Articles by this author in: CrossRef |  Google Scholar

Journal title

Entrepreneurship and Sustainability Issues

Volume

12


Number

4


Issue date

June 2025


Issue DOI


ISSN

ISSN 2345-0282 (online)


Publisher

VšĮ Entrepreneurship and Sustainability Center, Vilnius, Lithuania

Cited

Google Scholar

Article views & downloads

HTML views: 629  |  PDF downloads: 309

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