Demand-Side Stabilization Policies: What is the Evidence of their Potential?

December 1, 2000

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Using disaggregated data for the United States, this paper explores the effects of the variability of fiscal and monetary policy shocks. Higher variability of government spending shocks around a steady-state growth trend results, on average, in a decline in aggregate demand growth and inflation, with limited effects on output growth. On the other hand, higher variability of monetary shocks results, on average, in an increase in inflation and a decline in output growth. These results indicate the desirability of avoiding large fluctuations over time in either government spending or the money supply.

Subject: Expenditure, Monetary base, Money, National accounts, Private consumption, Private investment, Production, Production growth

Keywords: aggregate demand demand shock, aggregate demand shift, asymmetric fluctuations, contraction decrease, durable goods, Fiscal policy, government spending shock, Monetary base, monetary policy, money supply, price inflation, Private consumption, Private investment, Production growth, shocks decrease, supply curve, WP

Pages:
31
Volume:
2000
DOI:
https://doi.org/10.5089/9781451860009.001
Issue:
197
Series:
Working Paper No. 2000/197
Stock No:
WPIEA1972000
ISBN:
9781451860009
ISSN:
1018-5941

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