Some Empirical Evidence about the Macroeconomic Mix (1990)

In Chapter 4, the present writer, with Van Hoa (1987), discussed evidence that different forms of macroeconomic stimulus have different effects on the price level for a given effect on unemployment. The conclusion of that study was that measures of monetary expansion have been by far the most inflationary, and the least likely to have an appreciable downward effect on unemployment of the three forms of stimulus tested. Tax cuts appeared to be followed by a significant fall in unemployment over the immediately ensuing years, but without significant apparent upward effects on inflation. Rises in government outlays were intermediate between these two extremes in appearing not to be followed by significant downward effects on unemployment and by only a fairly small upward effect on inflation.