Re-examining the Effectiveness of Stabilisation Policy

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Title Re-examining the Effectiveness of Stabilisation Policy
Author Makin, Anthony John
Journal Name Australian Economic Papers
Editor Professor Daniel Leonard
Year Published 2007
Place of publication Australia
Publisher Blackwell Publishing Ltd
Abstract This paper develops an alternative international macroeconomic model for evaluating the effectiveness of fiscal and monetary policy in stabilizing national income under fixed and floating exchange rates. It encompasses national output and income, saving, investment, the current account, interest rates and the money supply, while incorporating long-recognised linkages between the exchange rate, price levels and real interest rates, consistent with conventional international parity conditions. It concludes that the exchange rate regime is ultimately not a critical determinant of the effectiveness of fiscal and monetary policy. Importantly, it predicts that fiscal expansion in the form of reduced public saving is counterproductive as a means of stabilising national income, irrespective of exchange rate choice. Contrary to standard international macroeconomic theory, the model implies that fiscal consolidation strengthens the balance of payments, exchange rates and national income.
Peer Reviewed Yes
Published Yes
Volume 46
Issue Number 4
Page from 348
Page to 359
ISSN 0004-900X
Date Accessioned 2008-01-14
Language en_AU
Faculty Griffith Business School
Subject Macroeconomic Theory
Publication Type Journal Articles (Refereed Article)
Publication Type Code c1

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