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Has fiscal policy helped stabilize the postwar U.S. economy?

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  • Jones, John Bailey

Abstract

In this paper, I consider whether postwar fiscal policy has helped stabilize the U.S. economy. I do this by adding fiscal policy feedback rules to the stochastic growth model. I estimate the feedback rules from postwar data with the generalized method of moments. These rules allow fiscal policies to respond to current and lagged output and labor hours. I use the estimated policy rules to see if postwar fiscal policy reduces output volatility and/or lengthens expansions and shortens recessions. I find that fiscal policy in general provides little stability on either count. I also find that the endogenous feedback rules, by themselves, are at best moderately stabilizing and are in some cases destabilizing.
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  • Jones, John Bailey, 2002. "Has fiscal policy helped stabilize the postwar U.S. economy?," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 709-746, May.
  • Handle: RePEc:eee:moneco:v:49:y:2002:i:4:p:709-746
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