The Effects of Economic Policy 1979-82

The central purpose of this article is to provide measures of the effect of fiscal and monetary policy in the period 1979-82, using for the purpose information derived from simulations of two macroeconometric models of the British economy, those of HM Treasury and the National Institute of Economic and Social Research. The methodology employed is explained in detail in the next section, which is succeeded by a discussion of its implementation in the second section of the article. The principal results of the analysis are then set out in the third section of the article. The period under consideration has been marked by a severe recession, to which domestic economic policy has not been the only contributor; in the fourth section of the article we therefore consider the additional influence of world factors. In the fifth section we go on to consider an extension of the policy measures to take account of exchange rate policy. There is a final section of conclusions which assesses the contribution of government policy and the downturn in world trade to the shortfall of output below its trend value. An appendix provides additional technical detail whilst more complete tabulations of the results are available on request from the authors.