SEVERITY OF ECONOMIC FLUCTUATIONS UNDER A BALANCED BUDGET AMENDMENT |
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| Authors: | CHARLES L WEISE |
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| Institution: | *Assistant Professor, Department of Economics, The College of William and Mary, Williamsburg, Virginia. |
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| 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. |
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