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

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


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.

Recommended Citation

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.

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Finance and General Business