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Has Fiscal Policy Helped Stabilize the Postwar U.S. Economy?

  • John Bailey Jones

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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File URL: http://www.albany.edu/%7Ejbjones/fispol/Fispol.htm
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Paper provided by University at Albany, SUNY, Department of Economics in its series Discussion Papers with number 99-03.

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Date of creation: 1999
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Handle: RePEc:nya:albaec:99-03
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Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.

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Fax: (518) 442-4736

Order Information: Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
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