Short Run Costs of Structural Reforms

2018 ◽  
Author(s):  
Rana Sajedi
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Potential Role ◽  
Product Market ◽  
Labour Markets ◽  
Structural Reforms ◽  
Costs And Benefits ◽  
Trade Off ◽  
Long Run ◽  
Short Run

Structural reforms that increase competition in product markets, or increase flexibility in labour markets, can entail short run output costs unless offset by a demand expansion. When monetary policy is constrained and cannot carry out this short run expansion, there is a potential role for fiscal policy. This chapter quantifies these short run fiscal costs and long run fiscal benefits of reforms, and investigates how the design of reforms can affect this trade-off. In the model, both the costs and benefits of reforms are generally small, although increasingly large reforms entail larger rises in deficit-to-GDP in the short run. Results suggest that reforms in labour markets have little effect on public finances in the long run, but can help to ameliorate the short run costs of product market reforms.

scholarly journals Tackling inflation in Nigeria: Monetary or fiscal policy? An empirical assessment of the effectiveness of the simultaneous implementation of the policies

2020 ◽  
Vol 1 (Number 1) ◽  
pp. 26-45
Author(s):  
Ibrahim Abdulhami Danlami ◽  
Mohamad Helmi Hidthiir ◽  
Sallahuddin Hassan
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Market Equilibrium ◽  
Product Market ◽  
Fiscal Policies ◽  
Distributed Lag ◽  
Distributed Lag Model ◽  
Long Run ◽  
Short Run ◽  
Lag Model

The study is aimed at empirically assessing between monetary policy and fiscal policy, the most effective in combating and tackling inflation in Nigeria, especially when implemented simultaneously – the effect of the concurrent implementation of the two policies on inflation. The variables of the policies are based on market information, money market equilibrium (LM Curve) for monetary policy, and product market equilibrium (IS Curve) for fiscal policy. The research makes use of the Autoregressive Distributed Lag Model (ARDL). Data for Nigerian was used from 1970 – 2016. The findings show that monetary and fiscal policies can be implemented concurrently as monetary policy is the best for a short-run solution during the fiscal policy for a long-run solution. The findings of the study are based on Nigerian data utilized for the period 1970 – 2016 and the method of data analysis adopted – ARDL, as well as variables selection based on the general equilibrium of money and product market. The findings of the study clearly show that monetary and fiscal policies can be used simultaneously to tackle inflation in Nigeria successfully, being effective in combating inflation in different periods (short-run or long-run). The study attempted to harmonize the incompatible theories and their policies to see whether the policies can be utilized concurrently since the policies are aimed at effecting price stability. The research’s findings confirm the feasibility of implementing the two policies concurrently and their effects to be felt or realized in different periods – short-runs and long-runs.

scholarly journals An econometric analysis of the effectiveness of fiscal and monetary policies in India

2021 ◽  
Author(s):  
Anand Nadar
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Fiscal Policy ◽  
Money Supply ◽  
Series Data ◽  
Monetary Policies ◽  
Indian Economy ◽  
Long Run ◽  
Short Run ◽  
Bound Test

This study investigatesthe effectiveness of fiscal policy and monetary policy in India. We collected thetime series data for India ranging from 1960 to 2019 from World Development Indicator (WDI). Weapplied the bound test co-integration approach to check the long-run relationship between fiscalpolicy, monetary policy, and economic growth in the context of Indian economy. The short-run andlong-run effects of fiscal policy and monetary policy have been estimated using ARDL models. Theresults showed that there is a long-run relationship between fiscal and monetary policies witheconomic growth. The estimated short-run coefficients indicated that a few immediate short runimpacts of fiscal and monetary policies are insignificant. However, the short-run impacts becomesignificant as time passes. The long-run results suggested that the long-run impact of both fiscal andmonetary policies on economic growth are positive and significant. More specifically, the GDP levelincreases if the money supply and government expenditure increase (Expansionary fiscal andmonetary policies). On the other hand, the GDP level decreasesif the money supply and governmentexpenditure decrease (contractionary fiscal and monetary policies). Therefore, this studyrecommends to use expansionary policies to spur the Indian economy.

scholarly journals Cyclical Fluctuation, Growth, and Stabilization: An Empirical Investigation of Dual Policy Objectives in Bangladesh

2020 ◽  
Author(s):  
Richmond Sam Quarm ◽  
Mohamed Osman Elamin Busharads
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Business Cycle ◽  
Interest Rates ◽  
Money Supply ◽  
Macroeconomic Policy ◽  
Output Growth ◽  
Long Run ◽  
Short Run ◽  
The Business Cycle

In conventional economics, two types of macroeconomic policy i.e. fiscal policy and monetary policy are used to streamline the business cycle. This paper has examined the cyclical behavior of these variables over the business cycle of Bangladesh. The objective of this examination is to show whether policies (fiscal policy and monetary policy) in Bangladesh are taken with a motive to stabilize the economy or only to promote economic growth. In other words, it has examined whether the policies in Bangladesh are procyclical or countercyclical or acyclical. Hodrick Prescott (HP) filter has been used to separate the cyclical component of considered variables. Both correlation and regression-based analysis have provided that in Bangladesh government expenditure and interest rates behave procyclically, but money supply behaves acyclically over the business cycle. Besides, this paper has tried to identify the long-term as well as the short-term relationship between real GDP and the macroeconomic policy variables with the help of the Johansen cointegration test, vector error correction model (VECM), and block exogeneity Wald test. Through these analyses, this study has found that fiscal policy has a significant impact on GDP growth both in the short-run and long-run. In the case of monetary policy, although the interest rate has an impact on real output both in the short-run and long-run, the money supply has neither a short-run nor long-run effect on output growth.

scholarly journals Impact of Monetary Policy Uncertainty and Fiscal Policy Uncertainty on CO2 Emissions in the Us

2020 ◽  
Author(s):  
Khalid Anser ◽  
Qasim Syed ◽  
Noreen Khalid ◽  
Jamshid Ali Turi ◽  
Juned Ali Shah
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Environmental Degradation ◽  
Carbon Emissions ◽  
Annual Data ◽  
Policy Uncertainty ◽  
Policy Makers ◽  
Long Run ◽  
Short Run ◽  
The Impact

Abstract Nowadays, environmental degradation is perceived as one of the serious concerns across the globe. One of the prime reasons behind environmental degradation is CO2 emissions. Therefore, researchers are actively putting their efforts to explore the determinants of CO2 emissions to mitigate CO2 emissions. On this basis, the present study contributes to the existing literature by investigating the impact of monetary policy uncertainty (MPU) and fiscal policy uncertainty (FPU) on CO2 emissions (environmental degradation). The current study employs ARDL methodology and uses annual data ranging from 1985 to 2019 for US. The results from the ARDL model report that there is an existence of long-run relationship among the variables. Moreover, MPU escalates the carbon emissions in both short-run and long-run. This implies that increase in MPU is responsible for rise in environmental degradation. On the contrary, FPU plunges the carbon emissions in both short- and long-run. This indicates that increase in FPU decreases the environmental degradation. Findings from the current study propose that policy makers should introduce reforms and launch policies to shrink MPU. Next, this study proposes that rule should be adopted as monetary policy making framework in lieu of discretion. Furthermore, the current study recommends that FPU should not be utilized as a tool to mitigate environmental degradation, because FPU has severe economic impacts.

scholarly journals The Effectiveness of Fiscal and Monetary Policy: Case of Uzbekistan

2020 ◽  
Vol 6 (3) ◽  
pp. 266-274
Author(s):  
Sh. Sitmuratov
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Current Period ◽  
Long Run ◽  
Equilibrium Relationship ◽  
Goods Market ◽  
Short Run ◽  
Monetary And Fiscal Policy ◽  
Fiscal And Monetary Policy

The article examines an effectiveness of government monetary and fiscal policy for Uzbekistan by constricting IS-curve for goods market and LM-curve for money market, simultaneously. For the both markets equilibrium interest rate is also determined. The results show that the variables are co integrated, that the variables have long-run or short-run equilibrium relationship between them. According to the empirical results, the long-run equilibrium interest rate for covered period was 22.0% for Uzbekistan, for the current period we recommend the equilibrium interest rate around 15%.

scholarly journals The Fiscal Reaction Function and the Transmission Mechanism for Pakistan

2007 ◽  
Vol 46 (4II) ◽  
pp. 435-447 ◽  
Author(s):  
Mahmood Khalid ◽  
Wasim Shahid Malik ◽  
Abdul Sattar
Keyword(s):  
Monetary Policy ◽  
Side Effects ◽  
Fiscal Policy ◽  
Supply And Demand ◽  
New Keynesian ◽  
Supply Side ◽  
Demand Side ◽  
Long Run ◽  
Short Run ◽  
Macro Variables

Modern macroeconomics literature emphasises both the short run and long run objectives of fiscal policy [Romer (2006)]. In the short run it can be used to counter output cyclicality and/or stabilise volatility in macro variables, which is descriptively same as of effects of the short run monetary policy. Further for the long-run, fiscal policy can also affect both the demand and supply side of the economy. But in most traditional analyses it is assumed that fiscal policy would adjust to ensure the intertemporal budget constraint to be satisfied, while monetary policy is free to adjust its instruments [‘Ricardian Regime’ by Sargent (1982)] such as stock of money supply or the nominal interest rate [Walsh (2003)]. The debt financing methods, expenditure and tax powers of fiscal authorities i.e. the fiscal policy has also been seen as to affect both the supply and demand side of the economy. As noted by Baxter and King (1993), the initial Real Business Cycle models had only the supply side effects of the fiscal policy, where these were transmitted through the wealth effect and labourleisure choices of the household. Recently also New-Keynesian type models with micro-foundations and sticky prices argue that still through the supply side fiscal policy management could be accorded for stabilisation [Linnemann and Schabert (2003)]. The demand side effects of the fiscal policy could also be found only with more imperfections such as ‘Rule of Thumb’ consumers or those with liquidity constraints, which lead to exclusion of Ricardian equivalence [Gali, et al. (2005)]. But all that depends on the structure of the economy, as Blanchard and Perotti (2002) stated:

scholarly journals Estimating the Costs and Benefits of a Common Currency for the Second West African Monetary Zone (WAMZ)

2013 ◽  
Vol 5 (2) ◽  
pp. 57-68 ◽  
Author(s):  
Harrison Oluchukwu Okafor
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Monetary Union ◽  
Financial Integration ◽  
Forecast Error ◽  
Policy Coordination ◽  
Trade Creation ◽  
Costs And Benefits ◽  
Common Currency ◽  
Short Run

This paper, estimates the costs and benefits of a common currency in WAMZ. Behavioral models capturing the elements of costs (asymmetric shocks, loss of monetary policy autonomy, and fiscal policy distortion), and benefits (trade creation, financial integration effects and policy coordination gains) were estimated using the Vector Auto-regression (VAR) procedure and panel estimation technique.VAR impulse response and forecast error method was used to determine the countries’ response to shocks while panel regression technique was used to estimate other behavioral equations. Fiscal policy distortion and loss of monetary policy autonomy are the main cost of monetary union in the zone while the potential trade creation gain is marginal. High disposition to money reserve and weak revenue base are the core determinants of fiscal policy distortion in the zone. Overall, the paper concludes that fiscal policy distortion constitutes serious policy challenge to monetary union in the zone. Dealing with this challenge may require short-run systematic macroeconomic adjustments to enhance the convergence of macroeconomic policy indicators in the zone.

scholarly journals Cyclical Fluctuation, Growth, and Stabilization: An Empirical Investigation of Dual Policy Objectives in Bangladesh

2020 ◽  
Vol 3 (4) ◽  
Author(s):  
Sakil Ahmmed ◽  
◽  
Jonaed Jonaed
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Business Cycle ◽  
Interest Rates ◽  
Money Supply ◽  
Macroeconomic Policy ◽  
Output Growth ◽  
Long Run ◽  
Short Run ◽  
The Business Cycle

In conventional economics, two types of macroeconomic policy i.e. fiscal policy and monetary policy are used to streamline the business cycle. This paper has examined the cyclical behavior of these variables over the business cycle of Bangladesh. The objective of this examination is to show whether policies (fiscal policy and monetary policy) in Bangladesh are taken with a motive to stabilize the economy or only to promote economic growth. In other words, it has examined whether the policies in Bangladesh are procyclical or countercyclical or acyclical. Hodrick Prescott (HP) filter has been used to separate the cyclical component of considered variables. Both correlation and regression-based analysis have provided that in Bangladesh government expenditure and interest rates behave procyclically, but money supply behaves acyclically over the business cycle. Besides, this paper has tried to identify the long-term as well as the short-term relationship between real GDP and the macroeconomic policy variables with the help of the Johansen cointegration test, vector error correction model (VECM), and block exogeneity Wald test. Through these analyses, this study has found that fiscal policy has a significant impact on GDP growth both in the short-run and long-run. In the case of monetary policy, although the interest rate has an impact on real output both in the short-run and long-run, the money supply has neither a short-run nor long-run effect on output growth.

scholarly journals Relative Effectiveness of Fiscal and Monetary Policies in Nigeria

2016 ◽  
Vol 2 (1) ◽  
pp. 117
Author(s):  
David Iheke Okorie ◽  
Manu Adasi Sylvester ◽  
Dak-Adzaklo Cephas Simon-Peter
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Positive Impact ◽  
A Priori ◽  
Relative Effectiveness ◽  
Fiscal Policies ◽  
Policy Effects ◽  
Distributed Lag ◽  
Long Run ◽  
Short Run

This study employs the auto regressive distributed lag (ARDL) model to ascertain the relative effectiveness of monetary and fiscal policies in Nigeria using a quarterly time-series from 1981-2012. From our analysis, it discovered that monetary and fiscal policies both have significant positive impact income. This conforms to a priori expectation and we discovered that monetary policy effects income faster than fiscal policy. In the short run, monetary policy effects income more than fiscal policy but the reverse is the case for the long run. Total impact of fiscal policy is higher than that of monetary policy. This study supports the use of both policies to achieve change in income but this depends on the objective the authorities want to achieve.

scholarly journals An econometric analysis of the effectiveness of fiscal and monetary policies in India

2021 ◽  
Author(s):  
Anand Nadar
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Fiscal Policy ◽  
Government Expenditure ◽  
Series Data ◽  
Monetary Policies ◽  
Long Run ◽  
Development Indicator ◽  
Short Run ◽  
Bound Test

This study investigate the effectiveness of fiscal policy and monetary policy in India. We collected thetime series data for India ranging from 1960 to 2019 from World Development Indicator (WDI). Weapplied the bound test to check the long-run relationship between fiscal policy, monetary policy andeconomic growth. The short-run and long-run effects of fiscal policy and monetary policy have beenestimated using ARDL models. The results showed that there is a long-run relationship between fiscaland monetary policies with economic growth. The estimated short-run coefficients indicated that afew immediate short run impact of fiscal and monetary policies are insignificant. However, the shortrun impacts become significant as time passes. The long-run results suggested that the long-runimpact of both fiscal and monetary policies on economic growth are positive and significant. Morespecifically, the GDP level increases if the money supply and government expenditure increase(Expansionary fiscal and monetary policies). On the other hand, the GDP level decrease if the moneysupply and government expenditure decrease (contractionary fiscal and monetary policies).Therefore, this study recommend to use expansionary policies to spur the Indian economy.

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