Symposium Introduction: Monetary and Fiscal Policy in Theory and Practice

By Nevile, J. W. | The Economic and Labour Relations Review : ELRR, July 2005 | Go to article overview

Symposium Introduction: Monetary and Fiscal Policy in Theory and Practice


Nevile, J. W., The Economic and Labour Relations Review : ELRR


At the 1997 Annual Meeting of the American Economic Association five eminent but diverse economists participated in a symposium on whether there is a core of practical macroeconomics that could be confidently used, especially to underpin macroeconomic policy. The papers were published as Blanchard (1997), Blinder (1997), Eichenbaum (1997), Solow (1997) and Taylor (1997). Given the diversity of the five there is a remarkable degree of agreement. All five agree that in the long run there is no trade off between unemployment and inflation and that trend movements in real variables such as output, employment and unemployment are determined by the supply side. Aggregate demand has little place in long run analysis. As Solow put it, "the appropriate vehicle for analysing the trend motion is some sort of growth model, preferably mine" (1997, p. 230).

There is also agreement that in the short run, due to wage and price rigidities and perhaps expectation factors, monetary policy can and does affect the levels of output, employment and unemployment. Moreover, there is a short run trade off between unemployment and inflation. Views on how to balance the costs of unemployment against the cost of inflation can be expected to vary among economists, but since monetary policy is in the hands of central bankers, generally a conservative group of people, most weight is given to keeping the inflation rate low. In a number of countries this goal is explicitly made the major responsibility of the central bank. In Australia the Government has given in writing the Reserve Bank a target for inflation but no other explicit targets, although unemployment is ranked equally with price stability as goals in the legislation establishing the Reserve Bank.

The five economists also agree that in the short run fiscal policy as well as monetary policy can influence output, employment and unemployment, though their theoretical reasons for this differ. Eichenbaum argues that discretionary fiscal policy is "neither desirable nor politically feasible" (1997, p. 236), since long lags in implementation (in the United States, at least)1 may make the use of fiscal policy counterproductive. Also there are worries about the use of expansionary fiscal policy when the level of public debt is high. In Australia neither of these objections carry much weight. Fiscal policy measures can be, and have been, introduced whenever thought desirable and not just in the annual budget. Moreover, expansionary fiscal policy measures usually are approved without delay by both Houses of Parliament. Eichenbaum's statement about the undesirability of fiscal policy may reflect a widespread concern about the use of expansionary fiscal policy when there is a high level of public debt. In Australia the public debt is so small as to be virtually non-existent.

This core of macroeconomics has become known as the new consensus or the new neoclassical synthesis. It is described in more detail in the articles in this symposium by Hart and by Kriesler and Lavoie. Hart goes further and sets out in detail the theoretical structure on which the new consensus is based. Both articles are highly critical of this new consensus. The discussion may sound like a doctrinal discussion among economic theorists. But it does affect policy making in the real world. As Blinder points out, this sort of discussion "potentially affects the well-being of hundreds of millions of people around the globe" (1997, p.243).

The article by Kriesler and Lavoie is a critique of this new consensus, or new neoclassical synthesis, that draws particularly on the work of Post Keynesian economists.2 Kriesler and Lavoie reject the conclusions of the new consensus about the relationship between unemployment and inflation in both the short run and the long run. They argue that, over a large range of unemployment rates, changes in the rate of unemployment have no effect on the rate of inflation. Moreover, the level of economic activity is often such that unemployment is in this range. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Symposium Introduction: Monetary and Fiscal Policy in Theory and Practice
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.