Monetary and Fiscal Actions: A Test of Their Relative Importance in Economic Stabilization

Abstract

Mt IGH employment, rising outpint of goods and services, and relatively stable pn'ices are three widely accepted national economic goals. Responsibility for' economic stabilization actions to meet these goals has been assigned to monetary and fiscal amrthor-ities. The Federal Reserve System has the major responsibility for monetan'v management. Fiscal actions involve feden'al government spending plans and taxing provisions. Governmental units involved in fiscal actions are the Congress and the Administr'alioti, including the 'i'r'easun'y, the Bureau of the Budget, and the Council of Economic Advisers. This ar-tide reports the results of recent n-esean'ch which tested three commonly held pn-opositions concerning tile n-eiative inipon-tance of monetary arid fiscal actions in implementing economic stabilization policy. These propositions are: the nesporise of economic activity to fiscal actions n-dative to that of monetary actions is Ill greater, (2) more pr'edictable, and (3 fasten'. Specific meanings, fon' the purposes of this anticle, of the bi-oad ten-ms used in these propositions are pn-esented later'.

The role of fiscal policy in the St. Louis model: An evaluation and some new evidence

“…In investigating the above question and some other related issues, we use quarterly U.S. data from 1947:I to 1984:IV. Whereas Andersen and Jordan (1968), Carlson (1980) and others used classical regression and related methods, our paper uses the spectral method in particular and time series methods in general.…”

The Empirical Reliability of Monetary Aggregates as Indicators: 1983–1987

“…This approach is based on the reduced-form framework of the St. Louis equation, first implemented by Andersen and Jordan [1968].8 This approach was chosen for two reasons. This approach is based on the reduced-form framework of the St. Louis equation, first implemented by Andersen and Jordan [1968].8 This approach was chosen for two reasons.…”

“…The indicator properties of the monetary aggregates can be compared by examining their relative ability to mimic the movements in the quarterly growth of real GNP and the GNP deflator. This approach is based on the reduced-form framework of the St. Louis equation, first implemented by Andersen and Jordan [1968].8 This approach was chosen for two reasons. First, it comes with a large body of published empirical research which contains information that can be used to deal with the econometric problem of model specification.…”

“…Because of a lack of success in obtaining similar information to specify the distributed-lag pattern for federal expenditures, identical restrictions were imposed for both monetary and fiscal variables in any given equation. Andersen and Jordan [1968] and Jordan [1986] stress the importance, and perhaps dominance, of influences besides monetary and fiscal policy on nominal GNP. The relative price of imported oil, measured by the Venezuelan price of petroleum relative to the GNP deflator, was included here to account for one of these factor^.^ The growth rate of this variable appears in the inflation equation with the same distributed-lag specification as monetary and fiscal variables.…”

The Asymmetric Effects of Monetary Policy: Some Results from a Macroeconometric Model

“…Such methods have the advantage of being much easier and cheaper to compute and, from the monetarist point of view, the important feature that they mostly give a very prominent role to money. The reduced form approach has taken a variety of forms including the historical narrative approach of Friedman and Schwartz (1963), the more formal econometric approach embodied in the`St Louis' models pioneered by Andersen and Jordan (1968) and ¢nally the vector autoregression models (VARs) of Sims (1972).…”