Alternative Modes of Federal Deficit Financing, Money Growth, Inflation, Interest Rates and the Crowding-Out Effect

594 p.Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1985.It has been asserted that increases in federal budget deficits can have one or more of the following effects: (i) stimulate the economy when it is operating short of capacity utilization; (ii) generate inflationary pressures; (iii) crowd out private investment thus decreasing economic growth; and (iv) increase the public debt.In recent years, a number of theoretical and empirical analyses have attempted to explain the influence of governmental fiscal actions on economic variables. However, there is not a consensus within the economic profession concerning the causes and consequences of fiscal actions.The empirical literature in this area suffers from the fact that it neglects three major aspects of the problem. First, most studies do not treat years prior to World War II. Second, few studies permit parameter estimates to vary over time. Finally, few studies have examined the lag occurring between fiscal actions and system response.This study aims to make some progress with respect to these deficiencies. Using annual data for the period 1923-1982, two models are developed and estimating equations are derived for money growth, inflation, real output, nominal output, unemployment, employment, and interest rates. By estimating these equations using switching regression and maximum likelihood techniques structural changes are identified. By using a continuous and a discrete time model, with various lag lengths, one is able to gain some insights into the lag lengths associated with the effects of various economic magnitudes.This analysis reveals that the interaction between fiscal and monetary policies, between real and financial aspects of fiscal policy, and between alternative modes of financing federal deficits are central to understanding the complex effects of federal deficits on the economy.U of I OnlyRestricted to the U of I community idenfinitely during batch ingest of legacy ETD