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Stability with GrowthMacroeconomics, Liberalization and Development$
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Joseph Stiglitz, José Antonio Ocampo, Shari Spiegel, Ricardo Ffrench-Davis, and Deepak Nayyar

Print publication date: 2006

Print ISBN-13: 9780199288144

Published to Oxford Scholarship Online: September 2006

DOI: 10.1093/0199288143.001.0001

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Policy Instruments from Three Perspectives: Fiscal and Monetary Policy

Policy Instruments from Three Perspectives: Fiscal and Monetary Policy

Chapter:
(p.63) 5 Policy Instruments from Three Perspectives: Fiscal and Monetary Policy
Source:
Stability with Growth
Author(s):

Joseph E. Stiglitz (Contributor Webpage)

José Antonio Ocampo (Contributor Webpage)

Shari Spiegel

Ricardo Ffrench-Davis (Contributor Webpage)

Deepak Nayyar

Publisher:
Oxford University Press
DOI:10.1093/0199288143.003.0005

This chapter focuses on the use of fiscal and monetary policies (including an analysis of the macroeconomic dimensions of prudential regulations) for a closed economy by contrasting Keynesian, heterodox, and conservative perspectives on the effectiveness of various instruments and their ancillary effects. While conservatives believe that fiscal policy is ineffective due to offsetting actions, standard Keynesians believe that government expenditures have a multiplier effect, and heterodox economists believe there may also be a financial accelerator if firms are cash or credit constrained. Similarly, while conservative economists believe that deficit spending maybe be counterproductive and can lead to crowding out and a loss of investor confidence, heterodox and Keynesians believe that there may be crowding in and that a strong economy builds investor confidence. The disagreements extend to views of monetary policy as well where conservatives believe that monetary policy is largely ineffective, Keynesians believe that monetary policy is an important tool in macroeconomic management, and heterodox economists emphasize that credit, and not the money supply, matters for the level of economic activity. Finally, heterodox economists have also designed ways to use prudential regulations as a tool for macroeconomic policy.

Keywords:   fiscal policies, monetary policies, prudential regulations, offsetting actions, multiplier effect, financial accelerator, crowding out, crowding in, fiscal stabilization funds

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