Monetary Misconceptions: New and Old Paradigmata and Other Sad Tales

Willem Buiter

No 2365, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Several recent studies imply that the response of national saving to fiscal policy is non-monotonic. In this paper, we use two data sets to search for the circumstances in which such non-monotonic responses arise: one refers to a sample of OECD countries, as in previous studies, and one to a sample of developing countries, using recent World Bank data. We find that in both samples non-monotonic effects tend to be associated with large and persistent fiscal impulses. In the OECD such responses are stronger for fiscal contractions than for fiscal expansions: during large fiscal contractions an increase in net taxes has no effect on national saving. High or rapidly growing public debt does not appear to be a good predictor of non-monotonic effects. Using the World Bank data, the situations in which the non-monotonic response of national saving to fiscal policy is not limited to large fiscal contractions. They also occur during large fiscal expansions, and in periods in which debt is accumulating rapidly, regardless of its initial level.

Keywords: Inflation targeting; Monetary policy; New paradigm; Stabilization policy (search for similar items in EconPapers)
JEL-codes: E31 E32 E50 E52 E58 E61 F31 F41 F43 (search for similar items in EconPapers)
Date: 2000-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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