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A Comprehensive Comparison of Fiscal and Monetary Policies: A Comparative Dynamics Approach

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  • Sawyer, Malcolm
  • Veronese Passarella, Marco

Abstract

The purpose of the paper is to provide a comprehensive comparison of fiscal and monetary policies with different forms of public expenditure, including a job guarantee (JG) plan. Our key findings are as follows. First, expansionary fiscal policies (including JG) are effective in reflating the economy independently of the way in which they are funded. However, deficit monetization should be expected to be more effective in the short run, while bill-funded government spending is likely to be more effective in the long run. Second, expansionary monetary policies are reflationary in the short run. However, they may have deflationary effects on the economy in the medium to long run. Third, a lower reserve requirement can reflate the economy, but the expected impact is rather weak. Fourth, non-selective tax cuts are effective, but less effective than government spending. Fifth, the impact on the price level is harder to predict than the impact on output. Sixth, conventional spending outclasses JG in terms of GDP growth and inflation rate control, but the JG is a better option in terms of employment results and income distribution.

Suggested Citation

  • Sawyer, Malcolm & Veronese Passarella, Marco, 2021. "A Comprehensive Comparison of Fiscal and Monetary Policies: A Comparative Dynamics Approach," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 384-404.
    • Handle: RePEc:eee:streco:v:59:y:2021:i:c:p:384-404
    DOI: 10.1016/j.strueco.2021.08.009
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    References listed on IDEAS

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    Cited by:

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    2. Temperini, Jacopo & D'Ippoliti, Carlo & Gobbi, Lucio, 2024. "Is the time ripe for helicopter money? Growth impact and financial stability risks of outright monetary transfers," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 24-36.
    3. Botta, Alberto & Caverzasi, Eugenio & Russo, Alberto, 2024. "Same old song: On the macroeconomic and distributional effects of leaving a Low Interest Rate Environment," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 552-570.

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    More about this item

    Keywords

    Stock-Flow Consistent Models; Job Guarantee Plan; Fiscal Policy; Monetary Policy;
    All these keywords.

    JEL classification:

    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E16 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Social Accounting Matrix

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