SEVERITY OF ECONOMIC FLUCTUATIONS UNDER A BALANCED BUDGET AMENDMENT

Charles Weise ()

Contemporary Economic Policy, 1996, vol. 14, issue 2, 26-40

Abstract: This paper uses a vector autoregression model to estimate the role of fiscal and monetary policy stabilizers during the last four U.S. recessions. The data show that both types of stabilizers have had a large stabilizing effect. These results imply that adopting a balanced budget rule would increase greatly the severity of future recessions and require the Federal Reserve to respond much more strongly to economic fluctuations than is currently the case.

Date: 1996
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