Title

The Impact of Monetary and Fiscal Policies on Real Output: A re-Examination

Abstract

Research continues to investigate the relative efficacy of monetary and fiscal policies for stabilizing the US economy, a debate that began with Anderson and Jordan's well-known study. This paper examines the contention of Senbet that monetary policy matters for stabilizing real economic activities; fiscal policy does not. We show that this claim is unfounded and apparently the outcome of prematurely dismissing fiscal policy from the cointegrating vector. In the context of a properly specified model, results we obtained from cointegration and error-correction tests using data and time period similar to Senbet's consistently suggest that only fiscal policy Granger-causes real output over the long-run. Moreover both monetary and fiscal actions Granger-cause significant short-run effects on the real side of the economy.

Department(s)

Finance and General Business

Document Type

Article

DOI

https://doi.org/10.4172/2151-6219.100097

Keywords

cointegration, Granger-causality, real effects of monetary and fiscal policies

Publication Date

2014

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