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Monetary and Fiscal Actions: A Test of Their Relative Importance in Economic Stabilization

1968; Federal Reserve Bank of St. Louis; Volume: 50; Linguagem: Inglês

10.20955/r.50.11-24.qox

2163-4505

Leonall C. Andersen, Jerry L. Jordan,

Fiscal Policies and Political Economy

HIGH EMPLOYMENT, rising output of goods and services, and relatively stable prices are three widely accepted national economic goals.Responsibility for economic stabilization actions to meet these goals has been assigned to monetary and fiscal authorities, The Federal Reserve System has the major responsibility for monetary management.Fiscal actions involve Federal Government spending plans and taxing provisions.Governmental units involved in fiscal actions are the Congress and the Administration, including the Treasury, the Bureau of the Budget, and the Council of Economic Advisers.This article reports the results of recent research which tested three commonly held propositions concerning the relative importance of monetary and fiscal actions in implementing economic stabilization policy.These propositions are: The response of economic activity to fiscal actions relative to that of monetary actions is (I) greater, (II) more predictable, and (III) faster.Specific meanings, for the purposes of this article, of the broad terms used in these propositions are presented later.This article does not attempt to test rival economic theories of the mechanism by which monetary and fiscal actions influence economic activity.Neither is it intended to develop evidence hearing directly on any causal relationships implied by such theories.More elaborate procedures than those used here would he required in order to test any theories underlying the familiar statements regarding results expected from monetary and fiscal actions.However, empirical relationships are developed between frequently used measures of stabilization actions and economic activity.These relationships are consistent with the implications of some theories of stabiliza-