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New results in support of the fiscal policy ineffectiveness proposition

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  • Reuven Glick
  • Michael Hutchison

Abstract

We demonstrate that previous tests of money and fiscal "policy ineffectiveness" are likely to be biased because they ignore interaction effects between policies, induced either by direct policy linkages or through the variation of policies in response to common factors. Our analysis takes into account possible interactive effects between monetary and fiscal policy in an attempt to avoid the biases of previous research. Our empirical analysis of U.S. experience supports the short-run ineffectiveness of anticipated and unanticipated fiscal policy, in contrast to other empirical research, but similarly to most other studies rejects the short-run neutrality of anticipated money. However, we find that in the longer run all policies -- either anticipated or unanticipated -- have had neutral effects on U.S. output growth.

Suggested Citation

  • Reuven Glick & Michael Hutchison, 1987. "New results in support of the fiscal policy ineffectiveness proposition," Working Papers in Applied Economic Theory 87-02, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfap:87-02
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    References listed on IDEAS

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    Cited by:

    1. Schclarek, Alfredo, 2007. "Fiscal policy and private consumption in industrial and developing countries," Journal of Macroeconomics, Elsevier, pages 912-939.
    2. Chesang, Laban K. & Naraidoo, Ruthira, 2016. "Parameter uncertainty and inflation dynamics in a model with asymmetric central bank preferences," Economic Modelling, Elsevier, pages 1-10.

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    Keywords

    Fiscal policy ; Monetary theory;

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