Working Paper: NBER ID: w1293
Authors: Ray C. Fair
Abstract: This paper considers that possibility that expected future government deficits directly affect economic decisions, in particular the decisions of the Federal Reserve. Some evidence is presented in Section II that indicates that the behavior of the Fed may be influenced by expected future deficits.The economic consequences of this behavior are examined in Section III. The results in this section show that fiscal policy is less effective if the Fed responds to expected future deficits than otherwise. Quantitative estimates of the differences in fiscal-policy effects are presented.
Keywords: government deficits; federal reserve; fiscal policy; economic activity
JEL Codes: E62; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| expected future government deficits (H68) | Federal Reserve behavior (E52) |
| Federal Reserve behavior (E52) | economic activity (E20) |
| expected future government deficits (H68) | interest rate adjustments (E43) |
| Federal Reserve behavior (E52) | impact of fiscal policy on the economy (E62) |