Abstract
This article uses vector autoregression analysis to examine the relative impacts on black and white employment growth of monetary and fiscal actions. It was found that the employment responses to anticipated policy actions, while significant, were generally short-lived, with the exception of the effects of anticipated money growth on white employment. The influences of unanticipated policy changes are of a longer duration. The predominant finding in which black employment growth responded differently from white employment growth was in response to a monetary shock. The black employment response was sharply negative while the white employment response was a gradual increase over nine quarters. The results indicate that this difference occurred only during the 1980s and not in the 1970s and suggests that the effects of bank failures and credit rationing during this period may have significantly hurt minority employment opportunities.
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Notes
R. Lucas, “ Some International Evidence on Output-Inflation Tradeoffs, “American Economic Review, vol. 63 (June 1973), pp. 326–334.
E. Hull, “Money Growth and the Employment of Black Americans,”Review of Black Political Economy, vol. 12 no. 3 (Spring 1983), pp. 63–74.
W. Greider,Secrets of the Temple, (New York: Touchstone Books, Simon and Schuster Inc., 1987).
R. Johnson, “The Strategy of Macroeconomic Policy and Black Americans,”Re- view of Black Political Economy, vol. 13 (Summer-Fall 1984), pp. 51–59.
For a good summary of the literature on this issue of segmented labor markets, see T. Boston,Race, Class and Conservatism, (Winchester, Mass.: Unwin Hyman, Inc., 1988), especially chapter 4.
C. Sims, “Macroeconomics and Reality,”Econometrica, vol. 48 (January 1980a), pp. 1–48. Also, C. Sims, “Comparison of Interwar and Postwar Business Cycles: Mon- etarism Reconsidered,”American Economic Review, vol.70 (May 1980b), pp.250-259.
R. McGee, and R. Stasiak, “Does Anticipated Monetary Policy Matter?”Journal of Money, Credit and Banking, vol. 17 (February 1985), pp. 16–27. Also, R. Barro, “Unanticipated Money Growth and Unemployment in the United States,”American Economic Review, vol.67 (March 1977), pp.101-115.
The employment data were made available from the Bureau of Labor Statistics in Washington, D.C.; the money supply data were made available from the Federal Reserve Board of Governors; and the cyclically adjusted budget deficit data were collected from theSurvey of Current Business, Vol.66, No.3, (March 86), with revised data from 1981 to the present coming from the Federal Reserve Bank of St. Louis’sMonetary Trends.
For a discussion of money demand and money velocity see J. Judd, B. Motley and B. Trehan, “The Demand for Money: Where Do We Stand?” Working Paper 88-02, Federal Reserve Bank of San Francisco (July 1988).
The seminal study that sparked two decades of research on the relative effects of monetary vs. fiscal policy was by L. Andersen, and J. Jordan, “Monetary and Fiscal Actions: A Test of Their Relative Importance in Economic Stabilization,”Review, Fed- eral Reserve Bank of St. Louis (November 1968), pp.11-24. This study used the high- employment budget deficit series. For a discussion on the merits of the cyclically adjusted budget deficit, see F. deLeeuw, and T. Holloway, “The Measurement and Significance of the Cyclically Adjusted Federal Budget and Debt,”Journal of Money, Credit and Banking, (May 1985), 232–242.
For a discussion regarding the issue of contemporaneous covariance, see H. Theil,Principles of Econometrics, John Wiley and Sons, (New York 1971), p. 298. Also, McGee and Stasiak (1985).
Boston (1988).
McGee and Stasiak (1985).
A variable (X) is said to (Granger) cause another variable (Y) if the past values of X along with the past values of Y can be used to predict future values of Y more accurately than if only the past values of Y are used. Thus, a zero in an off-diagonal position of the coefficient matrix indicates the absence of direct causality. C. W. J. Granger, “Investigating Causal Relations By Econometric Models and Cross-Spectral Methods,”Econometrica, vol. 37 (July 1969), pp. 424–438.
R. Gordon, “Output Fluctuations and Gradual Price Adjustment,”Journal of Economic Literature, vol. 19 (June 1981), pp. 493–530.
Sims (1980a,b).
For a detailed, yet understandable discussion of vector autoregression techniques such as are used here, see R. Porter, and E. Offenbacher, “Empirical Comparisons of Credit and Monetary Aggregates Using Vector Autoregressive Methods,” Federal Re- serve Bank of Richmond,Economic Review, vol. 69 (November/December 1983), pp. 16–29.
Sims (1980a,b).
Greider (1987, p.413).
These statistics were obtained from F. Mishkin,Money, Banking and Financial Markets, 2nd ed., (Glenview, Illinois: Scott, Foresman and Co.), p. 190, andThe Sta- tistical Abstract of the United States, Commerce Dept. Bureau of the Census, Table 785.
Greider (1987), p.141.
Boston (1988).
Greider (1987), pp.142–144.
J. D. Abell, “Unanticipated Deficits and Interest Rates,”American Economist, vol. 32 (Fall 1988), pp. 11–19.
Ibid..
M. Friedman, “Monetary Theory,”Journal of Money, Credit, and Banking, vol. 14 (February 1982), pp. 98–118.
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Abell, J.D. The impact of demand management policies on black vs. white employment. Rev Black Polit Econ 18, 43–60 (1989). https://doi.org/10.1007/BF02895232
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DOI: https://doi.org/10.1007/BF02895232