scholarly journals Tax Cuts And Interest Rate Cuts: An Empirical Comparison Of The Effectiveness Of Fiscal And Monetary Policy

2011 ◽  
Vol 2 (8) ◽  
Author(s):  
Tricia Coxwell Snyder ◽  
Donald Bruce
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Error Correction ◽  
Relative Effectiveness ◽  
Explanatory Power ◽  
Tax Rates ◽  
Stabilization Policy ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
Fiscal And Monetary Policy

<p class="MsoBlockText" style="margin: 0in 0.5in 0pt;"><span style="font-style: normal; mso-bidi-font-style: italic;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;">Can expansionary fiscal or monetary policy stimulate the U.S. economy in light of recent events?<span style="mso-spacerun: yes;">&nbsp; </span>Using an Error-Correction-Vectorautoregression, we examine the relative effectiveness of both types of governmental stabilization policy. Unlike previous studies, we use a more general error correction vectorautoregression (ECM) approach.<span style="mso-spacerun: yes;">&nbsp; </span>Our focus is on determining the relative explanatory power of measures of monetary policy (M2 and the Federal Funds Rate) and fiscal policy (marginal income tax rates and government spending) in explaining movements in consumption, investment, and output.<span style="mso-spacerun: yes;">&nbsp; </span>Results suggest that monetary policy is relatively more powerful than fiscal policy. </span></span></span></p>

scholarly journals Dynamic Linkages Between Monetary Policy And The Stock Market

2011 ◽  
Vol 4 (12) ◽  
Author(s):  
Nikiforos T. Laopodis
Keyword(s):  
Monetary Policy ◽  
Stock Market ◽  
Error Correction ◽  
Font Size ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
Dynamic Relationship ◽  
Short Run ◽  
Operating Regimes ◽  
Dynamic Linkages

<p class="MsoNormal" style="text-align: justify; margin: 0in 31.2pt 0pt 33.3pt;"><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;; font-size: 10pt; font-weight: normal;">This paper examines the dynamic linkages between the federal funds rate and the S&amp;P500 index for the 1970-2003 period, decade by decade, using cointegration and error-correction methodologies. The results indicate absence of cointegration during the 1970s and the 1980s but presence of a dynamic, short-run relationship between the two variables only in the 1970s. Specifically for the 1990s, there seems to have been a disconnection between actions taken by the Fed and responses by the stock market or vice versa. Overall, the results seem to suggest that there was no concrete and consistent dynamic relationship between monetary policy and the stock market and that the nature of such dynamics was different in each of the three decades, which coincided with three different Fed operating regimes.</span></p>

scholarly journals Relative Effectiveness of Monetary and Fiscal Policies on Output Stabilization in Developing Countries: Evidence from Rwanda

2017 ◽  
Vol 10 (1) ◽  
pp. 220
Author(s):  
Kabanda Richard ◽  
Peter W. Muriu ◽  
Benjamin Maturu
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Relative Effectiveness ◽  
Variance Decomposition ◽  
Var Model ◽  
Fiscal Policies ◽  
Impulse Responses ◽  
Exogenous Variables ◽  
Output Stabilization ◽  
The Government

The aim of this study was to explain the relative effectiveness of monetary and fiscal policies in explaining output in Rwanda. The study used a sample of quarterly data for the period 1996-2014. Applying a recursive VAR, the study used 12 variables, including 5 endogenous and 7exogenous variables to the benchmark model and other two specifications were attempted to capture the true contribution of monetary and fiscal policies to variations in nominal output. Obtained results using impulse responses and variance decomposition provide evidence that monetary policy is more effective than fiscal policy in explaining changes in nominal output in Rwanda. In addition, monetary policy explains better output when the VAR model contains domestic exogenous variables than when they are not included, suggesting the relevance of including domestic exogenous variables in VAR specification of monetary and fiscal policies effectiveness on economic variables. Another suggestion is that in order to achieve higher growth, the government of Rwanda should rely more on monetary policy as compared to fiscal policy.

The political economy of inflation

2021 ◽  
Vol 18 (3) ◽  
pp. 331-343
Author(s):  
Frances Coppola
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Money Supply ◽  
Central Banks ◽  
The Political ◽  
Economic Output ◽  
Political Choices ◽  
Redistributive Effects ◽  
Fiscal And Monetary Policy ◽  
Political Decisions

For the last 40 years, macroeconomics has been dominated by Milton Friedman’s view that inflation occurs when the supply of money rises more quickly than economic output – ‘too much money chasing too few goods’, as the saying goes. If inflation is always due to an imbalance of money supply and output, central banks alone determine the path of inflation, and fiscal policy merely has a redistributive function. This paper draws on historical and empirical evidence as well as recent theoretical literature to show that this view is mistaken. Monetary policy has redistributive effects, and fiscal policy affects the money supply. It is therefore impossible to separate them in practice. Both fiscal and monetary policy have inflationary consequences, and because their distributional effects are different, monetary policy cannot fully offset fiscal decisions. Fiscal and monetary policy are influenced by political decisions and are themselves political in nature. Since inflation reflects spending and saving patterns which are affected by political choices, it is fundamentally a political phenomenon.

scholarly journals Monetary Policy and Real Borrowing Costs at the Zero Lower Bound

2015 ◽  
Vol 7 (1) ◽  
pp. 77-109 ◽  
Author(s):  
Simon Gilchrist ◽  
David López-Salido ◽  
Egon Zakrajšek
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Zero Lower Bound ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
Borrowing Costs ◽  
Pass Through

This paper compares the effects of conventional monetary policy on real borrowing costs with those of the unconventional measures employed after the target federal funds rate hit the zero lower bound (ZLB). For the ZLB period, we identify two policy surprises: changes in the two-year Treasury yield around policy announcements and changes in the ten-year Treasury yield that are orthogonal to those in the two-year yield. The efficacy of unconventional policy in lowering real borrowing costs is comparable to that of conventional policy, in that it implies a complete pass-through of policy-induced movements in Treasury yields to comparable-maturity private yields. (JEL E31, E43, E44, E52)

Financial Constraints, Monetary Policy Shocks, and the Cross-Section of Equity Returns

2019 ◽  
Vol 33 (9) ◽  
pp. 4367-4402 ◽  
Author(s):  
Sudheer Chava ◽  
Alex Hsu
Keyword(s):  
Monetary Policy ◽  
Cross Section ◽  
Equity Returns ◽  
Monetary Policy Shocks ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
Oxford University ◽  
Policy Shocks ◽  
The Cross ◽  
The Impact

Abstract We analyze the impact ofa unanticipated monetary policy changes on the cross-section of U.S. equity returns. Financially constrained firms earn a significantly lower (higher) return following surprise interest rate increases (decreases) as compared to unconstrained firms. This differential return response between constrained and unconstrained firms appears after a delay of 3 to 4 days. Further, unanticipated Federal funds rate increases are associated with a larger decrease in expected cash flow news, but not discount rate news, for constrained firms relative to unconstrained firms. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Canadian monetary policy and the US federal funds rate

2008 ◽  
Vol 15 (11) ◽  
pp. 899-904 ◽  
Author(s):  
H. Sonmez Atesoglu ◽  
John Smithin
Keyword(s):  
Monetary Policy ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
The Us

scholarly journals Deleveraging and Monetary Policy: Japan Since the 1990s and the United States Since 2007

2012 ◽  
Vol 26 (3) ◽  
pp. 177-202 ◽  
Author(s):  
Kazuo Ueda
Keyword(s):  
United States ◽  
Monetary Policy ◽  
Great Recession ◽  
Federal Reserve ◽  
The United States ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
The Great Recession ◽  
Policy Responses ◽  
The U.S

As the U.S. economy works through a sluggish recovery several years after the Great Recession technically came to an end in June 2009, it can only look with horror toward Japan's experience of two decades of stagnant growth since the early 1990s. In contrast to Japan, U.S. policy authorities responded to the financial crisis since 2007 more quickly. Surely, they learned from Japan's experience. I will begin by describing how Japan's economic situation unfolded in the early 1990s and offering some comparisons with how the Great Recession unfolded in the U.S. economy. I then turn to the Bank of Japan's policy responses to the crisis and again offer some comparisons to the Federal Reserve. I will discuss the use of both the conventional interest rate tool—the federal funds rate in the United States, and the “call rate” in Japan—and nonconventional measures of monetary policy and consider their effectiveness in the context of the rest of the financial system.

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