Alternative Modes of Deficit Financing and Endogenous Monetary and Fiscal Policy 1923-1982
49 Pages Posted: 17 May 2001 Last revised: 26 Oct 2022
Date Written: 1987
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.
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