Effective coordination between fiscal and monetary policy is crucial for macroeconomic stability, yet achieving it presents significant challenges due to differing objectives and institutional setups. This study evaluates the strategic interaction between fiscal and monetary authorities in Hungary from 2013 to 2023, employing the Nash equilibrium framework under the assumption of non-cooperative behavior. By modeling the authorities as independent players optimizing distinct payoff functions based on key economic indicators (interest rates, government spending, inflation, output gap, fiscal deficit, and public debt), the analysis estimates the best response strategies and computes the resulting Nash equilibrium. The key findings reveal persistent deviations between actual policies and the computed equilibrium strategies. Specifically, actual fiscal policy was consistently more expansionary (average actual deficit −2.6% to 7.6% GDP vs. equilibrium recommendations ranging from 8.5% surplus to −3.0% deficit) than the Nash equilibrium indicated, particularly during periods of economic growth. Monetary policy often lagged in equilibrium recommendations, maintaining low interest rates (e.g., 0.9% actual vs. 11.5% equilibrium in 2019) before implementing sharp increases (13% actual vs. approx. 3.5–3.8% equilibrium in 2022–2023) that significantly overshot the equilibrium. These misalignments underscore potential suboptimal outcomes arising from independent policymaking, contributing to increased public debt and heightened inflationary pressures in the Hungarian context. This study highlights the potential benefits of aligning policies closer to mutually consistent strategies, suggesting that improved coordination frameworks could enhance macroeconomic stability, offering insights relevant to Hungary and similar economies.

The changing global economy often requires a review of monetary policy frameworks, stressing the importance of clear theories and practical use. This paper aims to understand how different Keynesian-based theories tackle modern economic issues, especially in managing inflation, unemployment, and financial stability. Although both Post-Keynesian and New-Keynesian theories stem from Keynesian economics, they offer different methods and policy suggestions based on their unique theoretical bases. This paper addresses a gap in current research by providing a systematic comparative analysis of how Post-Keynesian and New-Keynesian frameworks influence real-world monetary policymaking, especially during financial crises and periods of structural economic change, areas often discussed separately but not directly compared. It outlines the theoretical assumptions, policy tools, and economic impacts of each school, offering a clearer understanding of their practical relevance. This comparison is vital for policymakers and economists facing complex economic conditions who require robust and flexible theoretical guidance. This study reveals that while both approaches contribute valuable insights to economic policymaking, they diverge significantly in their own perspectives on economic stabilization and crisis response. Post-Keynesians emphasize monetary endogeneity and the remediation of structural fragilities, whereas New-Keynesians prioritize market imperfections and expectation management via policy instruments.

The interplay between fiscal and monetary policy is critical for small open economies exposed to global volatility, yet the regime-dependent nature of this transmission often remains underexplored. This study investigates whether the Hungarian economy operated under fiscal or monetary dominance from 2010 to 2024, a period marked by significant external shocks. Adopting a Markov Regime-Switching VAR (MS-VAR) framework tailored to an open-economy context, the research estimates state-dependent reaction functions and Impulse Response Functions (IRFs) for both the central bank and the fiscal authority. The model explicitly controls for exogenous geopolitical and economic crises and is validated through rigorous stationarity and regime-selection tests. Empirical results reveal that Hungary predominantly operated under fiscal dominance, with the fiscal authority exhibiting non-Ricardian behavior and no significant response to debt accumulation across the sample. Conversely, the Magyar Nemzeti Bank demonstrated regime-switching behavior: a “Passive” stance accommodating fiscal expansion from 2013 to 2019, followed by a forced shift to an “Active” regime in 2022 characterized by aggressive responses to inflation and high-interest rate volatility. These findings suggest that in small open economies, policy dominance is frequently dictated by external constraints, with the burden of macroeconomic stabilization falling disproportionately on monetary policy during crisis episodes.

Although coordinating fiscal and monetary policy is essential for stabilizing small and globally exposed economies, researchers frequently oversimplify by treating the Visegrad Group (V4) as a uniform entity. This study investigates whether the Czech Republic, Hungary, Poland, and Slovakia are converging toward a unified macroeconomic standard or diverging due to institutional heterogeneity. Employing a hybrid framework combining Markov Regime-Switching Vector Autoregressive (MS-VAR) and single-regime robust OLS models alongside dynamic Impulse Response Functions (IRFs) on quarterly data from 2010 to 2024, the research estimates policy reaction functions to identify active and passive stances across the region. Empirical results suggest considerable regime heterogeneity. The Czech Republic and Poland demonstrate stable, single-regime monetary dominance grounded in strict Ricardian fiscal discipline. Conversely, Hungary exhibits structural fiscal dominance and severe institutional conflict, resulting in forced, high-volatility monetary tightening. Slovakia demonstrates persistent fiscal dominance but avoids macroeconomic destabilization because the market discipline provided by its Eurozone membership is economically negligible. The findings indicate that a country’s institutional setup and approach to monetary integration dictate its resilience to external shocks. This confirms that the V4 nations possess deep, underlying macroeconomic divergence.

Macroeconomic stabilization depends on the strategic interplay between the fiscal and monetary authorities operating under distinct mandates. This study evaluates these interactions across the Visegrad Group (Hungary, Czechia, Poland, and Slovakia) over 2010–2024. Each authority seeks to minimize an explicit quadratic loss function. A transmission block constrains this optimization, meaning policy affects output and inflation with a one-year lag. The resulting first-order conditions act as the reaction functions. Their intersection creates a state-contingent Nash equilibrium. We estimate the transmission block on the pooled panel. The reaction functions are estimated using two-stage least squares. Next, a wild cluster bootstrap incorporates parameter uncertainty into the equilibrium strategies. Slovakia requires an asymmetric model, using a counterfactual national rate derived from the pooled rule of its neighbors. Debt feedback provides stabilization in Hungary, Czechia, and Poland (long-run responses 0.46–1.22), but it is absent in Slovakia. Point estimates for long-run responses to expected inflation exceed one (1.50–1.79). However, a unit response cannot be rejected. Significant deviations from equilibrium clustered in 2020 and 2022. In 2020, all three central banks eased policy beyond the equilibrium level. In 2022, Hungary and Poland tightened policy past it. From 2020–2024, the monetary deviation significantly outweighed the fiscal deviation only in Hungary. By contrast, fiscal policy absorbed the larger adjustment in Slovakia.