Summary
This study aims at empirically testing the assertions of Monetarists and Keynesians as to the relative importance of monetary versus fiscal policy instruments. A small macro-economic model for the US economy has been constructed which seems to be acceptable to both Monetarists and Keynesians. Finally the unrestricted reduced form approach was compared to the restricted one resulting from the estimation of the structural model. While the unrestricted approach indicates that the potency of monetary policy exceeds that of fiscal policy, the restricted reduced form approach leads to the opposite conclusion.
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The authors wish to thank G.S. Maddala, William Poole, David Wilton and two anonymous referees for helpful comments and suggestions. This research was partly funded by the SUNY Research Foundation and the Center for Econometrics and Decision Sciences at the University of Florida. Empirical results reported in this version of the paper were obtained mainly by Osborne at the University of Guelph computer center.
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Gelfand, J., Lahiri, K. & Osborne, T. Government policy dynamics in structural and reduced form estimation. Empirical Economics 5, 205–217 (1980). https://doi.org/10.1007/BF01848050
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DOI: https://doi.org/10.1007/BF01848050