Monetary and Fiscal Impacts on Economic Activities in Bangladesh: Further Evidence

Mohammad S. Hasan
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Mohammad S. Hasan: Senior Lecturer, School of Business and Finance, Sheffield Hallam University, Sheffield, SI 1WB, United Kingdom

Bangladesh Development Studies, 2001, vol. 27, issue 4, 101-120

Abstract: One of the controversial issues in the contemporary macroeconomic policy debate is the relative effectiveness of monetary and fiscal actions on economic stabilisation which constitutes the cornerstone of the philosophical and ideological differences between Keynesians and monetarist economists. The discussion known as the AM-FM debate was initiated by Ando and Modigliani (1965), and Friedman and Meiselman (1965). Friedman and Meiselman(FM), based on simple correlation evidence between consumption expenditure and money stock as well as consumption expenditure and autonomous expenditure featured on the US annual data, concluded that money stock matters more than autonomous expenditures. The FM results provoked a counterclaim from Ando and Modigliani(AM) that both money stock and autonomous expenditure matter significantly. In an alternative approach, Ando and Modigliani (1965) contended that the Keynesian income expenditure theory outperformed quantity theory of money models as measured in terms of residual error variance. Later on, the monetarists versus fiscalists debate was extensively examined empirically both in terms of large-scale structural models (see, for example Evan and Klien 1967, De Leeuw and Grämlich 1968, and Duesenberry, Fromm, Klien and Kuh 1969) and in small scale reduced form models (see, for example Anderson and Jordan 1968, and Anderson and Carlson 1970) without a unanimous conclusion

Keywords: Government expenditures; Money supply; Economic models; Fiscal policy; Variable coefficients; Nominal income; Development studies; Statistical significance; Critical values (search for similar items in EconPapers)
JEL-codes: A10 (search for similar items in EconPapers)
Date: 2001
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