The Impact of Monetary and Fiscal Policies on Real Output: A re-Examination
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.
Finance and General Business
cointegration, Granger-causality, real effects of monetary and fiscal policies
Darrat, Ali F., Kenneth A. Tah, and Cedric L. Mbanga. "The Impact of Monetary and Fiscal Policies on Real Output: A Re-examination." Business and Economics Journal 5, no. 2 (2014): 1.