Advanced Search
MyIDEAS: Login

Monetary vs. Fiscal Policy Effects: A Review of the Debate

Contents:

Author Info

  • Bennett T. McCallum

Abstract

This paper reviews empirical findings, econometric issues,and theoretical results bearing upon the "monetary vs. fiscal policy" debate that began with the 1963 Friedrnan-Meiselman study.The main substantive conclusions are not very dramatic.The clearest is that an open-market increase in the money stock has a stimulative effect on aggregate demand, a conclusion that in turn implies that a money-financed increase in government expenditures (or reduction in taxes) is more stimulative than it would be if bond financed.This conclusion is based on empirical results obtained from St. Louis-type estimates and large scale economebic models and is supported by theoretical analysis involving both Ricardian and non-Ricardian assumptions. In the case of pure fiscal policy actions -- i.e.,bond-financed tax cutsor bond-financed expenditure increases --theory suggests that the latter should be at least as stimulative as the former and probably to a positive extent; evidence is mixed but not obviously inconsistent with this prediction.With respect to the textbook issue concerning the relative effects of pure monetary and fiscal actions, the evidence seems to support the notion that a sequence of $k open-market purchases, one each period, will be much more stimulative than a single but unreversed $k/period bond-financed increase in expenditures. The importance of this last issue is debatable.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w1556.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1556.

as in new window
Length:
Date of creation: Feb 1985
Date of revision:
Publication status: published as McCallum, Bennett T. "Monetary vs. Fiscal Policy Effects: A Review of the Debate." The Monetary vs. Fiscal Policy Debate, edited by R. W. Hafer, pp . 9-29. Totowa, NJ: Rowman & Allanheld, Publishers, 1986.
Handle: RePEc:nbr:nberwo:1556

Note: EFG
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Christopher A. Sims, 1982. "Policy Analysis with Econometric Models," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(1), pages 107-164.
  2. Blinder, Alan S. & Solow, Robert M., 1973. "Does fiscal policy matter?," Journal of Public Economics, Elsevier, vol. 2(4), pages 319-337.
  3. Robert B. Litterman, 1984. "Specifying vector autoregressions for macroeconomic forecasting," Staff Report 92, Federal Reserve Bank of Minneapolis.
  4. Bennett T. McCallum, 1981. "Monetarist Principles and the Money Stock Growth Rule," NBER Working Papers 0630, National Bureau of Economic Research, Inc.
  5. Mayer, Thomas, 1984. "The government budget constraint and standard macrotheory," Journal of Monetary Economics, Elsevier, vol. 13(3), pages 371-379, May.
  6. Dallas S. Batten & Daniel L. Thornton, 1983. "Polynomial distributed lags and the estimation of the St. Louis equation," Review, Federal Reserve Bank of St. Louis, issue Apr, pages 13-25.
  7. Franco Modigliani, 1977. "The monetarist controversy; or, should we forsake stabilization policies?," Economic Review, Federal Reserve Bank of San Francisco, issue Spr suppl, pages 27-46.
  8. Leonall C. Andersen & Jerry L. Jordon, 1968. "Monetary and fiscal actions: a test of their relative importance in economic stabilization," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 11-23.
  9. Brunner, Karl & Meltzer, Allan H, 1972. "Money, Debt, and Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 80(5), pages 951-77, Sept.-Oct.
  10. Friedman, Benjamin M, 1977. "Even the St. Louis Model Now Believes in Fiscal Policy: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(2), pages 365-67, May.
  11. Blinder, Alan S. & Solow, Robert M., 1976. "Does fiscal policy still matter? : A reply," Journal of Monetary Economics, Elsevier, vol. 2(4), pages 501-510, November.
  12. Douglas D. Purvis, 1980. "Monetarism: A Review," Canadian Journal of Economics, Canadian Economics Association, vol. 13(1), pages 96-122, February.
  13. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  14. Lipsey, R G & Parkin, J M, 1970. "Incomes Policy: A Re-appraisal," Economica, London School of Economics and Political Science, vol. 37(146), pages 115-38, May.
  15. Meltzer, Allan H, 1969. "Money, Intermediation, and Growth," Journal of Economic Literature, American Economic Association, vol. 7(1), pages 27-56, March.
  16. Sargent, Thomas J, 1976. "A Classical Macroeconometric Model for the United States," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 207-37, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Bennett T. McCallum, 1999. "Recent developments in the analysis of monetary policy rules," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 3-12.
  2. Edward Nelson & Anna J. Schwartz, 2008. "The impact of Milton Friedman on modern monetary economics: setting the record straight on Paul Krugman’s 'Who Was Milton Friedman?," Working Papers 2007-048, Federal Reserve Bank of St. Louis.
  3. Martin Feldstein & Douglas W. Elmendorf, 1989. "Budget Deficits, Tax Incentives and Inflation: A Surprising Lesson From The 1983-84 Recovery," NBER Working Papers 2819, National Bureau of Economic Research, Inc.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1556. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.