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Searching for the Relative Potency of Monetary and Fiscal Policies in Selected African Countries: A Panel Data Approach to St. Louis Equation

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  • Adeniji, Sesan
  • Evans, Olaniyi
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    Abstract

    With the aid of the St. Louis equation, this study applies panel data technique to real variables of some selected African countries with extended data from 1970 – 2012. The outcomes support both Keynesian and monetarist positive policy assertions. The monetary base and government expenditure are viable instruments to stabilize output. The study, as well, finds that utilizing the monetary base as a policy tool is more potent than using government expenditure. This is in line with the predictions of Milton Friedman and Schwartz (1963) and other advocates of the St. Louis equation. Therefore, in order to attain higher output growth, these economies should rely more on monetary policy as compared with fiscal policy.

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    File URL: http://mpra.ub.uni-muenchen.de/52420/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 52420.

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    Date of creation: 22 Dec 2013
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    Handle: RePEc:pra:mprapa:52420

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    Keywords: Monetary Policy; Fiscal Policy; St. Louis Equation and Panel Data;

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    1. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
    2. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Gramlich, Edward M, 1971. "The Usefulness of Monetary and Fiscal Policy as Discretionary Stabilization Tools," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 3(2), pages 506-32, May.
    4. Frederic S. Mishkin, 1994. "Preventing Financial Crises: An International Perspective," NBER Working Papers 4636, National Bureau of Economic Research, Inc.
    5. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
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