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2019 | OriginalPaper | Chapter

27. How Does Inflation Impact the Effects of Expansionary Monetary Policy and Fiscal Policies on Real GDP Growth?

Authors : Eliphas Ndou, Thabo Mokoena

Published in: Inequality, Output-Inflation Trade-Off and Economic Policy Uncertainty

Publisher: Springer International Publishing

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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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previous chapter Does the Economic Policy Uncertainty Channel Impact the Influence of Expansionary Monetary Policy Changes on Output Dynamics?

next chapter The Time-Varying Pass-Through of the Lending Rate Responses to the Repo Rate Changes and Loan Intermediation Mark-Ups

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.

This approach differs from Ball et al. (1988) and other studies that uses cross-country analysis.

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.CrossRef

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.CrossRef

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.CrossRef

Title: How Does Inflation Impact the Effects of Expansionary Monetary Policy and Fiscal Policies on Real GDP Growth?
Authors: Eliphas Ndou
Thabo Mokoena
Publisher: Springer International Publishing
Book: Inequality, Output-Inflation Trade-Off and Economic Policy Uncertainty
Print ISBN: 978-3-030-19802-2

Electronic ISBN: 978-3-030-19803-9

Copyright Year: 2019
DOI: https://doi.org/10.1007/978-3-030-19803-9_27