Determinants of policy variations and macroeconomic implications

The paper examines major determinants of the growth of the money supply and government spending across samples of developing and advanced countries. Time-series empirical models establish major domestic and external determinants of the policy response. Co-movement analysis of the coefficients studies coordination in the policy reactions with respect to a specific economic shift across countries. Cross-section analysis aims to establish variation in policy responses with respect to the variability indicators of real growth and price inflation. The last segment evaluates the implications of the policy shifts with respect to private spending and external spillovers on trends of real growth and price inflation. Higher variability of price inflation appears relevant to the responses of monetary and fiscal policies to domestic and external shifts across advanced countries. Across developing countries, both the variability of price inflation and real growth are relevant to monetary and fiscal responses to domestic and external shifts. Across developing countries, policies seem to be more conducive to supporting growth. Higher monetary growth supports capacity building, reinforcing the added benefits of imports. An increase in government spending with respect to oil price shocks increases trend real growth, although at a higher inflationary cost across developing countries.