Working Paper: NBER ID: w2123
Authors: Stephen J. Turnovsky; Mark E. Wohar
Abstract: This paper first investigates the effects of alternatives modes of deficit financing on the unemployment rate, inflation rate, and the real interest rate, within the framework of a small complete macroeconomic model. Secondly, it examines the nature of monetary and fiscal reaction functions. The two periods 1923- 1960 and 1961-1982 are considered, with substantial differences in behavior and policy being shown to exist between them The most important conclusion is that long-run monetary neutrality properties shown to exist over the latter period are not intrinsic to the economy, but rather are the result of the stabilization policies being conducted over that period.
Keywords: deficit financing; monetary policy; fiscal policy; unemployment; inflation
JEL Codes: E62; E31; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary growth rate (O42) | unemployment rate (J64) |
| real monetary base (E50) | inflation rate (E31) |
| money-financed government expenditure (E62) | inflation rate (E31) |
| money-financed government expenditure (E62) | unemployment rate (J64) |
| bond-financed government expenditure (H74) | inflation rate (E31) |
| bond-financed government expenditure (H74) | unemployment rate (J64) |
| monetary policy and fiscal policy interaction (E63) | inflation rate (E31) |
| monetary policy and fiscal policy interaction (E63) | unemployment rate (J64) |