Relative effectiveness of monetary and fiscal policies of St. Louis Model: Effects of revised data

Abstract

Scope and Method of Study: This study is concerned with the updating revision of the St. Louis Econometric model from the period 1953(I) to 1981 (II). The purpose of this study is to see how the revised data has the influence on the analysis of the model. The St. Louis Model is a reduced form single equation to show the impact of monetary and fiscal actions on total spending (GNP). Two independent variables , money stock (H1B) and high employment federal expenditures, represent monetary and fiscal actions, respectively . The model is calculated by using ordinary least square regression with Almon lag structure. The price equation and unemployment rate equation are also estimated.

Findings of Study: This updating revision gives the results that still support the monetarist view, that is, the monetary actions are relatively more effective than the fiscal actions. However, this study shows that the fiscal actions are now also effective which is different from the original results done by Andersen and Carlson (1970).