Spillover effects of the recent US monetary policy shocks on the South African economy: The role of monetary and fiscal policy coordination

The analysis finds that spillover effects are stronger when fiscal policy is active and monetary policy is passive (Regime F), compared to when monetary policy is active and fiscal policy is passive (Regime M). Under Regime F, higher inflation accompanies lower debt servicing costs, while Regime M contains inflation more effectively but results in a sustained increase in the debt-to-GDP ratio. Spillover effects are amplified by complete exchange rate pass-through and greater trade openness.