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

Raj, Baldev; Siklos, Pierre L.

doi:10.1002/jae.3950010306

Cited by 9 publications

(5 citation statements)

References 15 publications

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“…) For the flexible exchange rate regime these results are also consistent with predictions from the Mundell-Fleming model and provide an important confirmation of their modeling approach for the role of monetary-fiscal policy in an open economy. This paper could be seen as a follow.up study to an earlier one done of the United States (Raj and Siklos 1986), which reached similar conclusions. However, it has a number of features which distinguishes it from the earlier Raj-Sildos study.…”

Section: Objectives Of the Analysissupporting

confidence: 78%

“…Some empirical evidence that fiscal policy may not be strongly exogenous was provided by Raj and Siklos (1986) for the United States. In this paper we utilized a similar nonparametric approach for analyzing the reduced form AJ equation for an open economy and obtained some interesting new results.…”

Section: Discussionmentioning

confidence: 99%

“…16 In effect we assume that the influence of exports is subsumed in the error term of model (2.1). Such a practice may be accep.table under the circumstances (Raj and Siklos 1986). Unlike monetary policy, only the cumulative effect of future fiscal policy has a statistically significant impact on nominal GNP growth.…”

Section: Band Spectrum Regression Estimatesmentioning

confidence: 92%

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The role of fiscal policy in the St. Louis model: Nonparametric estimates for a small open economy

Raj

Siklos

1988

Empirical Economics

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This paper reevaluates the efficacy of monetary and fiscal policies and bidirectional causality between income and each of the policy instruments used in the St. Louis model for aggregate demand using nonparametrie (or infinite parametric) spectral methods. We proceed by estimating the strength of the correlations (or partial coherences) between income and each of the policy instruments over various frequencies. Then we obtain the corresponding band regression and Hannah's efficient estimates of both the lead and lag coefficients in the St. Louis model. The analysis is carried out with seasonally adjusted quarterly data and is divided into the flexible, f'med, and managed flexible exchange rate regimes.We find that while estimates from parametric regressions yield the standard conclusions for the St. Louis model, results from the nonparametrie analysis are quite different. Specifically, the results of our analysis reveal that (i) both monetary and fiscal instruments are strongly correlated with income over cycles of 10 quarters or longer for the most recent period of the managed flexible exchange rate regime, and (ii) bidirectional causality exists between income and the fiscal policy instrument. These results suggest that both monetary and fiscal policy have a long-lasting effect on aggxegate demand and that bidirectional causality exists between income and policy instruments. An explanation for the existence of bidirectional causality might be that the Canadian government generally pursued a purposeful discretionary fiscal policy during the post-World War II period. Furthermore, it appears that discretionary policy action may have beert anticipated by rational, farsighted, and forwardqooking economic agents. Finally, our results for the flexible exchange rate and fLxed rate regimes are in agreement with the MundeU-Fleming view of the role of monetary fiscal policy in an open economy.

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Section: Objectives Of the Analysissupporting

confidence: 78%

Section: Discussionmentioning

confidence: 99%

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The role of fiscal policy in the St. Louis model: Nonparametric estimates for a small open economy

Raj

Siklos

1988

Empirical Economics

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“…These techniques could include the use of error correction or cointegration methods as in Davidson et al [1978] and Granger and Engle [1987], spectral methods used by Raj and Siklos [1986], and other time series methods utilized by Bordo and Jonung [1987]. These techniques could include the use of error correction or cointegration methods as in Davidson et al [1978] and Granger and Engle [1987], spectral methods used by Raj and Siklos [1986], and other time series methods utilized by Bordo and Jonung [1987].…”

Section: Economic Inquirymentioning

confidence: 99%

“…It should be possible to separate the effects of long-run from short-run forces influencing velocity and to shed more light on the problem of misspecified dynamics. These techniques could include the use of error correction or cointegration methods as in Davidson et al [1978] and Granger and Engle [1987], spectral methods used by Raj and Siklos [1986], and other time series methods utilized by Bordo and Jonung [1987]. We are presently pursuing this line of research.…”

Section: Economic Inquirymentioning

confidence: 99%

Some Qualms About the Test of the Institutionalist Hypothesis of the Long‐run Behavior of Velocity

Raj¹,

Siklos

1988

Economic Inquiry

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This paper expresses econometric qualms about Bordo and Jonung's [1981] analysis of long-run velocity. They did not recognize that, for U S . and Canadian data, the log of velocity has a unit root. Hence, estimation of a log level regression may produce spurious regressions.When Bordo and Jonung's velocity equation is reestimated in rate of change form, permanent income is significant, contrary to their earlier conclusion. Moreover, using this approach gives a stronger result for one of the institutional variables in the velocity function, in the sense that the remaining variables become more significant. [1982] are the level of real per capita permanent income, the difference between the nominal yield on money and other financial assets, and the yield on physical assets. The effect of financial sophistication on demand for money has been recognized by Friedman and Schwartz [1982, sec. 6.31. However, they failed to capture the influence of financial sophistication on the demand for money through the use of proxy variables. Rather, they treated the effect of financial sophistication as an episode and allowed for its influence on velocity by adjusting the data. The task of empirically measuring financial sophistication was taken up by BJ [1981]. 537

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The Role of Fiscal Policy in the St. Louis Model: Nonparametric Estimates for a Small Open Economy

Raj

Siklos

1989

Semiparametric and Nonparametric Econometrics

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

Cited by 9 publications

References 15 publications

The role of fiscal policy in the St. Louis model: Nonparametric estimates for a small open economy

The role of fiscal policy in the St. Louis model: Nonparametric estimates for a small open economy

Some Qualms About the Test of the Institutionalist Hypothesis of the Long‐run Behavior of Velocity

The Role of Fiscal Policy in the St. Louis Model: Nonparametric Estimates for a Small Open Economy

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