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Fiscal theory of price level and coordination of monetary and fiscal policies: Understanding the current public debt and inflation dynamics
Thesis (PhD)--Stellenbosch University, 2026.
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| Format: | Thesis |
| Language: | English |
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Stellenbosch : Stellenbosch University
2026
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| _version_ | 1867613834602086400 |
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| access_status_str | Open Access |
| author | Mustapher, Marrium |
| author2 | Liu, Guangling |
| author_browse | Liu, Guangling Mustapher, Marrium |
| author_facet | Liu, Guangling Mustapher, Marrium |
| author_sort | Mustapher, Marrium |
| collection | Thesis |
| dc_rights_str_mv | Stellenbosch University |
| description | Thesis (PhD)--Stellenbosch University, 2026. |
| format | Thesis |
| id | oai:scholar.sun.ac.za:10019.1/136126 |
| institution | Stellenbosch University (South Africa) |
| language | English |
| last_indexed | 2026-06-10T12:42:26.594Z |
| license_str | Other — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from SUNScholar — Stellenbosch University Repository |
| publishDate | 2026 |
| publishDateRange | 2026 |
| publishDateSort | 2026 |
| publisher | Stellenbosch : Stellenbosch University |
| publisherStr | Stellenbosch : Stellenbosch University |
| record_format | dspace |
| source_str | SUNScholar — Stellenbosch University Repository |
| spelling | oai:scholar.sun.ac.za:10019.1/136126 Fiscal theory of price level and coordination of monetary and fiscal policies: Understanding the current public debt and inflation dynamics Mustapher, Marrium Liu, Guangling Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Economics. Thesis (PhD)--Stellenbosch University, 2026. Mustapher, M. 2026. Fiscal theory of price level and coordination of monetary and fiscal policies: Understanding the current public debt and inflation dynamics. Unpublished doctoral dissertation. Stellenbosch: Stellenbosch University [online]. Available: https://scholar.sun.ac.za/items/3d8acdf2-4a48-47c2-849e-049730143c4e This dissertation contributes to the growing literature on monetary and fiscal policy coordination. The goal of this dissertation is to understand the role of the monetary and fiscal policy mix regimes in shaping the transmission of domestic and foreign policy shocks to the public debt, inflation, and business cycle fluctuations. To this end, we first develop a New Keynesian Dynamic Stochastic General Equilibrium (NK-DSGE) model featuring a fiscal block and a coexistence regime with partially unbacked public debt, serving as a benchmark model. The model is calibrated to evaluate the role played by backed and unbacked public debt in the propagation of a contractionary monetary policy shock to public debt and inflation dynamics under a coexistence regime, in comparison to Regime M (an active monetary policy and a passive fiscal policy) and Regime F (an active fiscal policy and a passive monetary policy). We then adapt the benchmark NK-DSGE model to the South African economy and conduct Bayesian estimation to examine the role of the coexistence regime in the effects of both monetary and fiscal policy shocks on the dynamics of public debt, inflation, and other key variables in South Africa. The benchmark model is further extended into a small open economy NK-DSGE model to investigate the spillover effects of the recent US contractionary monetary policy shocks on South Africa’s inflation and business cycle fluctuations under Regime M and Regime F. The results reveal that, following domestic policy shocks, the coexistence regime, where the fiscal and monetary authorities coordinate to stabilize public debt, offers a better policy option, as it effectively stabilizes both public debt and inflation, while also achieving stable economic growth and promoting welfare, compared to Regime M and Regime F. Under the coexistence regime, when inflation is primarily fiscal, authorities face greater volatility in both public debt and inflation, and a significant trade-off between the respective volatilities. Debt service costs become much higher in a high interest rate environment and with greater price stickiness, leading to a greater increase in public debt following a domestic monetary policy shock. In the face of a foreign monetary policy shock, Regime M is more effective at containing the spillover effects of the shock on the South African economy, but leads to higher public debt, necessitating future fiscal adjustments to stabilize it. In contrast, Regime F results in more pronounced spillover effects, but maintains a well-stabilized public debt, at the cost of only temporary high inflation. These spillover effects are more amplified under both Regime M and Regime F, with a complete exchange rate pass-through and a higher degree of trade openness, with Regime F exhibiting a stronger amplification effect. Thus, both policy options appear less feasible considering South Africa’s current economic environment of high public debt, limited fiscal space, and the risk of a resurgence in inflation. The implication is that the coexistence regime remains a better policy option in the face of foreign monetary policy shocks. Thus, the importance of the coexistence regime cannot be overemphasized. Doctoral 2026-04-23T06:47:23Z 2026-04-23T06:47:23Z 2026-03 Thesis https://scholar.sun.ac.za/handle/10019.1/136126 en Stellenbosch University 158 pages application/pdf Stellenbosch : Stellenbosch University |
| spellingShingle | Mustapher, Marrium Fiscal theory of price level and coordination of monetary and fiscal policies: Understanding the current public debt and inflation dynamics |
| title | Fiscal theory of price level and coordination of monetary and fiscal policies: Understanding the current public debt and inflation dynamics |
| title_full | Fiscal theory of price level and coordination of monetary and fiscal policies: Understanding the current public debt and inflation dynamics |
| title_fullStr | Fiscal theory of price level and coordination of monetary and fiscal policies: Understanding the current public debt and inflation dynamics |
| title_full_unstemmed | Fiscal theory of price level and coordination of monetary and fiscal policies: Understanding the current public debt and inflation dynamics |
| title_short | Fiscal theory of price level and coordination of monetary and fiscal policies: Understanding the current public debt and inflation dynamics |
| title_sort | fiscal theory of price level and coordination of monetary and fiscal policies understanding the current public debt and inflation dynamics |
| url | https://scholar.sun.ac.za/handle/10019.1/136126 |
| work_keys_str_mv | AT mustaphermarrium fiscaltheoryofpricelevelandcoordinationofmonetaryandfiscalpoliciesunderstandingthecurrentpublicdebtandinflationdynamics |