Monetary/fiscal policy dominance and conflicts: Evidence from crises

We estimate a system of fiscal and monetary policy rules with Markov-switching interaction regimes to study policy coordination and conflict in the United States and the Euro Area during the Global Financial Crisis and the COVID-19 crisis. In the United States, we find shifts between policy coordination regimes, with both crises occurring under fiscal dominance. In contrast, the Euro Area displays persistent monetary dominance, despite temporary crisis-induced deviations. A country-level analysis shows that Germany follows the aggregate Euro Area pattern, while France and Italy exhibit policy conflict regimes, reflecting heterogeneity within the monetary union. • US crises occurred under fiscal dominance with pre-existing rising deficits. • Euro Area remained anchored in monetary dominance, with brief crisis deviations. • Germany mirrors EA stability, while France and Italy experience conflict regimes. • Policy regime shifts align with historical turning points and crisis responses.