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New results in support of the fiscal policy ineffectiveness proposition

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  • Reuven Glick
  • Michael M. 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 M. 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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    Cited by:

    1. Devadoss, Stephen, 1994. "Sluggish Price Adjustments And The Effectiveness Of Aggregate Demand Policies At The Sectoral Level," A.E. Research Series 305122, University of Idaho, Department of Agricultural Economics and Rural Sociology.
    2. Chesang, Laban K. & Naraidoo, Ruthira, 2016. "Parameter uncertainty and inflation dynamics in a model with asymmetric central bank preferences," Economic Modelling, Elsevier, vol. 56(C), pages 1-10.
    3. W D A Bryant, 2009. "General Equilibrium:Theory and Evidence," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 6875, October.
    4. Schclarek, Alfredo, 2007. "Fiscal policy and private consumption in industrial and developing countries," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 912-939, December.
    5. Michael A. Conte & Ali F. Darrat, 1993. "Testing Alternative Views Of Government Budgeting," Review of Financial Economics, John Wiley & Sons, vol. 3(1), pages 19-40, September.
    6. Paul Oslington, 2012. "General Equilibrium: Theory and Evidence," The Economic Record, The Economic Society of Australia, vol. 88(282), pages 446-448, September.

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    Keywords

    Fiscal policy; Monetary theory;

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