Table of Contents

Expansionary Versus Contractionary Government Spending

Anthony J. Makin, Griffith University - Griffith Business School

The Taylor Principle in the Long Run: An Empirical Perspective

Yu?Hsi Chou, Fu-Jen Catholic University, Department of Economics
Jyh?Lin Wu, National Sun Yat-sen University

Fiscal Multipliers During the Global Financial Crisis: Fiscal and Monetary Interaction Matters

Ju Hyun Pyun, Korea University Business School (KUBS)
Dong-Eun Rhee, Myongji University

Why Market Returns Favor Democrats in the White House

Sang Hyun (Hugh) Kim, Rutgers University at Newark
Michael S. Long, Rutgers University at Newark

The Optimal Interpretation of Austrian Business Cycle Theory

Alexander William Salter, Berry College
William J. Luther, Kenyon College


MACROECONOMICS: MONETARY & FISCAL POLICIES eJOURNAL

"Expansionary Versus Contractionary Government Spending" Fee Download
Contemporary Economic Policy, Vol. 33, Issue 1, pp. 56-65, 2015

ANTHONY J. MAKIN, Griffith University - Griffith Business School
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This article theoretically examines the impact of different forms of government spending on national income in a financially open economy with a significant net international investment position the central bank of which sets domestic interest rates to target inflation. It shows that whether government spending is expansionary or contractionary ultimately depends on the productivity of that expenditure, a result that has major implications for the efficacy of fiscal policy deployed for either stimulus or austerity reasons. The key prediction of the model is that public consumption and unproductive public investment are procyclical, whereas only productive public investment is countercyclical.

"The Taylor Principle in the Long Run: An Empirical Perspective" Fee Download
Contemporary Economic Policy, Vol. 33, Issue 1, pp. 66-86, 2015

YU?HSI CHOU, Fu-Jen Catholic University, Department of Economics
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JYH?LIN WU, National Sun Yat-sen University
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In this paper, we empirically assess the Taylor principle in the long run with a small-scale, trivariate structural vector autoregression. Using U.S. data spanning the period from 1959Q1 to 2010Q2 and different measures of inflation and the output gap, we find that the Taylor principle is supported in the long run for the post-1979 era, but the principle is unlikely to hold in the long run for the pre-1979 era.

"Fiscal Multipliers During the Global Financial Crisis: Fiscal and Monetary Interaction Matters" Fee Download
Contemporary Economic Policy, Vol. 33, Issue 1, pp. 207-220, 2015

JU HYUN PYUN, Korea University Business School (KUBS)
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DONG-EUN RHEE, Myongji University

This study investigates the fiscal multipliers of 21 Organization for Economic Co?operation and Development countries during the global financial crisis using panel vector auto regression methodology. Our findings suggest that the 1?year fiscal multiplier was greater than 1 during the crisis, whereas it was less than 1 before the crisis because of different fiscal and monetary interactions. The combination of expansionary monetary and fiscal policies during the crisis boosted gross domestic product more effectively through internal and external transmissions: investment crowding?out was limited, and net exports were spurred by the policy interaction. In addition, our results are robust to various specifications.

"Why Market Returns Favor Democrats in the White House" Free Download

SANG HYUN (HUGH) KIM, Rutgers University at Newark
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MICHAEL S. LONG, Rutgers University at Newark
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This study explains why the equity market earns greater returns for bearing risk when a Democrat is President in the USA versus a Republican. We look at data from 1929 through 2012. The data show that the value weighted return minus the corresponding period’s risk free rate is 10.83% when a Democrat is President, versus a corresponding return of -1.20% under Republican Presidents. In considering the more recent post-Kennedy time period, the excess returns are still large with 9.23% versus 0.16%. Starting with a basic valuation of a firm, we see the two basic macroeconomic arguments that affect market value between the two parties: differences in risk free interest rates and differences in economic growth. On average the Democrats follow a policy of low interest rates. The rate of return on short term T-bills averages 4.55% under the GOP and a 2.48% under Democrats. Further, the Democrats overall economic policies create a higher average real growth rate with a 4.8% average versus only 1.8% under Republican administrations. This results in higher dividend growth rates under Democrats of 2.46% versus 1.96% under the GOP administrations. These together explain the differences in equity market returns. What we cannot determine is what specific policies cause the lower risk free interest rates or the higher economic growth rates under Democrats as opposed to the Republicans.

"The Optimal Interpretation of Austrian Business Cycle Theory" Free Download

ALEXANDER WILLIAM SALTER, Berry College
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WILLIAM J. LUTHER, Kenyon College
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Since Hayek’s pioneering work in the 1930’s, the Austrian business cycle theory has been presented as a disequilibrium theory populated by less-than-perfectly rational agents. In contrast, we maintain that (1) the Austrian business cycle theory is consistent with rational expectations and (2) the post-boom adjustment process can be understood in an equilibrium framework. Hence, we offer a new interpretation of the existing theory. In doing so, we also address concerns raised with Garrison’s (2001) diagrammatic approach, wherein the economy moves beyond the production possibilities frontier. Our interpretation might accurately be described as a monetary disequilibrium approach grounded in an implicit general equilibrium framework with positive costs of reallocation.

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This eJournal distributes working and accepted paper abstracts of empirical and theoretical papers on different aspects of monetary and fiscal policies. The topics in this eJournal include E1 and E6 from Section E of the classification system of the JEL.

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MACROECONOMICS EJOURNALS

MICHAEL C. JENSEN
Social Science Electronic Publishing (SSEP), Inc., Harvard Business School, National Bureau of Economic Research (NBER), European Corporate Governance Institute (ECGI)
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Advisory Board

Macroeconomics: Monetary & Fiscal Policies eJournal

OLIVIER J. BLANCHARD
International Monetary Fund (IMF), National Bureau of Economic Research (NBER)

JOHN Y. CAMPBELL
Morton L. and Carole S. Olshan Professor of Economics, Harvard University - Department of Economics, National Bureau of Economic Research (NBER)

STEPHEN G. CECCHETTI
Professor of International Economics, Brandeis International Business School, National Bureau of Economic Research (NBER), Centre for Economic Policy Research (CEPR)

BENJAMIN M. FRIEDMAN
William Joseph Maier Professor of Economics, Harvard University - Department of Economics, National Bureau of Economic Research (NBER)

ROBERT E. HALL
Stanford University - The Hoover Institution on War, Revolution and Peace, National Bureau of Economic Research (NBER)

ROBERT E. LUCAS
John Dewey Distinguished Service Professor, University of Chicago - Department of Economics, National Bureau of Economic Research (NBER)

BENNETT T. MCCALLUM
Professor, Carnegie Mellon University - David A. Tepper School of Business, National Bureau of Economic Research (NBER)

ALLAN H. MELTZER
University Professor of Political Economics, Carnegie Mellon University - David A. Tepper School of Business

FREDERIC S. MISHKIN
Alfred Lerner Professor of Banking and Financial Institutions, Columbia Business School - Finance and Economics, National Bureau of Economic Research (NBER)

PAUL M. ROMER
National Bureau of Economic Research (NBER)

JULIO J. ROTEMBERG
Harvard University - Business, Government and the International Economy Unit, National Bureau of Economic Research (NBER)

MATTHEW D. SHAPIRO
Professor, University of Michigan at Ann Arbor - Department of Economics, Professor, National Bureau of Economic Research (NBER)

ROBERT J. SHILLER
Yale University - Cowles Foundation, National Bureau of Economic Research (NBER), Yale University - International Center for Finance

CHRISTOPHER A. SIMS
Princeton University - Department of Economics, National Bureau of Economic Research (NBER)

JOHN B. TAYLOR
Stanford University