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Domestic and cross-border consequences of U.S. macroeconomic policies

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  • Ralph C. Bryant
  • John Helliwell
  • Peter Hooper

Abstract

This paper reviews empirical evidence about the effects of changes in U.S. monetary policy and fiscal policy that has been accumulated during recent years in a series of collaborative research projects involving a variety of global macroeconometric models. The paper also considers, in particular, the consequences over the next five to six years for key U.S. and foreign economic variables of a significant U.S. fiscal contraction. The quantitative implications of both alternative fiscal spending and tax actions, and alternative treatments of expectations (adaptive versus rational) are analyzed. ; The results suggest that a phased-in fiscal contraction could reduce the level of output for up to several years, as well as the levels of interest rates, the dollar and the U.S. external deficit. The decline in the external deficit would be significantly smaller than the decline in the budget deficit, however. The negative effects on output would be mitigated to the extent that the phased-in contraction were anticipated (i.e., announced credibly in advance), to the extent that monetary policy were eased, or to the extent that the fiscal package emphasized spending cuts and personal taxes rather than corporate and excise taxes.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 344.

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Date of creation: 1989
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Handle: RePEc:fip:fedgif:344

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Keywords: Fiscal policy ; Monetary policy;

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References

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  1. Jacob A. Frenkel & Morris Goldstein & Paul R. Masson, 1988. "International Coordination of Economic Policies: Scope, Methods, and Effects," NBER Working Papers 2670, National Bureau of Economic Research, Inc.
  2. Gary Burtless, 1986. "The work response to a guaranteed income: a survey of experimental evidence," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 30, pages 22-59.
  3. Edison, Hali J. & Marquez, Jaime R. & Tryon, Ralph W., 1987. "The structure and properties of the Federal Reserve Board Multicountry Model," Economic Modelling, Elsevier, vol. 4(2), pages 115-315, April.
  4. Helliwell, John F. & Padmore, Tim, 1985. "Empirical studies of macroeconomic interdependence," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 21, pages 1107-1151 Elsevier.
  5. John F. Helliwell, 1988. "The Effects of Fiscal Policy on International Imbalances: Japan and the United States," NBER Working Papers 2650, National Bureau of Economic Research, Inc.
  6. Brayton, Flint & Mauskopf, Eileen, 1985. "The federal reserve board MPS quarterly econometric model of the US economy," Economic Modelling, Elsevier, vol. 2(3), pages 170-292, July.
  7. D. Peter Dungan & Thomas A. Wilson, 1988. "Modelling Anticipated and Temporary Fiscal Policy Shocks in a Macro-econometric Model of Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 21(1), pages 41-60, February.
  8. Boskin, Michael J, 1988. "Tax Policy and Economic Growth: Lessons from the 1980s," Journal of Economic Perspectives, American Economic Association, vol. 2(4), pages 71-97, Fall.
  9. Fromm, Gary & Klein, Lawrence R, 1973. "A Comparison of Eleven Econometric Models of the United States," American Economic Review, American Economic Association, vol. 63(2), pages 385-93, May.
  10. Frankel, Jeffrey A & Rockett, Katharine E, 1988. "International Macroeconomic Policy Coordination When Policymakers Do Not Agree on the True Model," American Economic Review, American Economic Association, vol. 78(3), pages 318-40, June.
  11. Ishii, Naoko & McKibbin, Warwick & Sachs, Jeffrey, 1985. "The economic policy mix, policy cooperation, and protectionism: Some aspects of macroeconomic interdependence among the United States, Japan, and other OECD countries," Journal of Policy Modeling, Elsevier, vol. 7(4), pages 533-572.
  12. Christ, Carl F, 1975. "Judging the Performance of Econometric Models of the U.S. Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(1), pages 54-74, February.
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Citations

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Cited by:
  1. Levin, Jay H., 1997. "Stabilization policy, exchange rate expectations, and international transmission," Journal of Policy Modeling, Elsevier, vol. 19(1), pages 19-40, February.
  2. Henri Sterdyniak & Agnès Bénassy, 1992. "La détermination des taux de change dans les modèles multinationaux : l'état de l'art," Économie et Prévision, Programme National Persée, vol. 104(3), pages 39-71.
  3. Agnès Bénassy-Quéré & Benoît Mojon & Jean Pisani-Ferry, 1997. "The Euro and Exchange Rate Stability," Working Papers 1997-12, CEPII research center.
  4. Deborah Danker & Peter Hooper, 1990. "International financial markets and the U.S. external imbalance," International Finance Discussion Papers 372, Board of Governors of the Federal Reserve System (U.S.).
  5. Nikiforos Laopodis, 2000. "Monetary policy implications of volatility linkages among long-term interest rates," Journal of Economics and Finance, Springer, vol. 24(2), pages 160-177, June.
  6. John F. Helliwell, 1989. "From Now till Then: Globalization and Economic Co-operation," Canadian Public Policy, University of Toronto Press, vol. 15(s1), pages 71-77, February.
  7. John F. Helliwell, 1990. "Fiscal Policy and the External Deficit: Siblings, but not Twins," NBER Working Papers 3313, National Bureau of Economic Research, Inc.
  8. Agnès Bénassy-Quéré & Benoît Mojon & Armand-Denis Schor, 1998. "The International Role of the Euro," Working Papers 1998-03, CEPII research center.

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