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Rethinking ExpectationsThe Way Forward for Macroeconomics$
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Roman Frydman and Edmund S. Phelps

Print publication date: 2013

Print ISBN-13: 9780691155234

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691155234.001.0001

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Stabilization Policies and Economic Growth

Stabilization Policies and Economic Growth

Chapter:
(p.351) Chapter Eleven Stabilization Policies and Economic Growth
Source:
Rethinking Expectations
Author(s):

Philippe Aghion

Enisse Kharroubi

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691155234.003.0012

This chapter examines the effect of the cyclical pattern of fiscal and monetary policies on economic growth. Economists generally see no connection between the way stabilization policies are implemented and the average speed at which the affected economy grows. If anything, growth theories tend to highlight the importance of stable and consistent policies as exemplified by recommendations to run prudent fiscal and monetary policies through balanced fiscal accounts or moderate inflation. Yet the view that policy recommendations to foster long-term growth should stop at calls for prudent fiscal and monetary policies has recently been challenged. Drawing on cross-industry, cross-country panel data regressions, this chapter explores the effect of fiscal policy countercyclicality and monetary policy countercyclicality. It shows that industries with greater financial constraints tend to grow faster in countries with more stabilizing fiscal or monetary policies.

Keywords:   economic growth, stabilization policies, fiscal policy, countercyclicality, monetary policy

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