Abstract
Evidence indicates the magnitudes of the multiplier effects of expansionary monetary and fiscal policies on output are bigger in the low inflation environment and low economic policy uncertainty regime than in the high inflation regime. The high trend inflation and elevated economic policy uncertainty dampen the multiplier effects of expansionary policies. Therefore low inflation and low economic policy uncertainty environments are needed to propagate the stimulatory effects of expansionary policies on GDP growth.
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Notes
- 1.
Their work differed from that of Ball et al. (1988) and Defina (1999) by allowing for the differential effects of monetary policy and government spending. They test the new Keynesian proposition that sticky prices increase the effects of government spending and monetary policy on gross national product. They found little evidence of the new Keynesian sticky price model.
- 2.
This approach differs from Ball et al. (1988) and other studies that uses cross-country analysis.
References
Ball, L., Mankiw, N. G., & Romer, D. (1988). The new Keynesian economics and the output-inflation tradeoff. Brooking Papers on Economic Activity, 1, 1–65.
Defina, R. H. (1999). International evidence on a new Keynesian theory of the output-inflation trade-off. Journal of Money, Credit and Banking, 23(3), 410–422.
Hlatshwayo, S., & Saxegaard, M. (2016). The consequences of policy uncertainty: Disconnects and dilutions in the South African real effective exchange rate-export relationship (IMF WP Number 16/113).
Koelln, K., Rush, M., & Walso, D. (1996). Do government policy multipliers decrease with inflation? Journal of Monetary Economics, 38, 495–505.
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Ndou, E., Mokoena, T. (2019). How Does Inflation Impact the Effects of Expansionary Monetary Policy and Fiscal Policies on Real GDP Growth?. In: Inequality, Output-Inflation Trade-Off and Economic Policy Uncertainty . Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-19803-9_27
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DOI: https://doi.org/10.1007/978-3-030-19803-9_27
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