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We study the effects of the Federal Reserve's two Quantitative Tightening (QT) programs implemented over the last decade. We employ a high-frequency identification strategy to distinguish between conventional monetary policy shocks, Treasury borrowing announcement shocks, and balance-sheet unwinding. We analyse both QT operations and announcements. Our results show that QT operations, as long as they entail a decrease in the reserve supply, have a significant and persistent deflationary effect on interest rates and asset prices. A $1 trillion reduction in securities holdings by the Fed is associated with a 1.8 percentage point increase in 10-year Treasury yields. In contrast to operations, we find that QT announcements had limited effects on financial markets, except during the 2013 taper tantrum and select communications regarding QT II timing. While the contractionary impact of QT has so far been offset by changes in other components of the Fed's balance sheet that have kept the supply of reserves constant, our results suggest that balance sheet reductions entail, in principle, strong negative effects on financial markets. Therefore, although QT does not represent, in the policymakers' view, the primary tool for achieving price stability, it is still far from running quietly in the background of the monetary policy stance, and an appropriate balance sheet normalisation strategy must take these effects into account.

This paper provides a quantitative evaluation of the effects of the direct credit controls that were used as a monetary policy tool by the Banca d'Italia from the mid-1970s to the early 1980s. By relying on archival data sources on monetary policy implementation and using a SVAR model with narrative identification, we estimate the effect of credit controls on output, prices and the trade balance, as well as on bank credit allocation across sectors. We find that credit controls had contractionary effects on output, which were overall qualitatively comparable with those obtained from shocks in the policy rate. However, credit policy was less effective at improving the external balance and credit ceilings actually raised prices due to supply-side tensions. These findings provide quantitative support for the view that credit policy tools, while effective as countercyclical instruments, proved less efficient than conventional monetary policy and created unintended economic distortions. Overall, this evidence suggests that policymakers gradually phased out these tools after a decade.

We use a structural macroeconomic model with households and firms forming informed expectations about future fiscal policies to investigate the macroeconomic and public finance implications of implementing different fiscal reaction functions and using diverse fiscal instruments to respond to shocks. Our results suggest that government's reactions disregarding the cyclical stance of the economy and available fiscal space are costlier than more flexible alternatives. The analysis also shows how macroeconomic frameworks facilitate assessing the feasibility of fiscal objectives and quantifying the macroeconomic impacts of specific fiscal reaction functions and how using them as part of medium-term fiscal projections helps authorities communicate the stance of fiscal policy to the public, thereby achieving a better blend of flexibility and credibility.