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Gdp As From Fmi Essay

1096 words - 5 pages

This statistical summary shows that the US GDP responds to the four basic instruments of the domestic economic policy: the fiscal policy (FE), the foreign relations policy (ER), the income distribution policy (MW) and the monetary policy, both directly through the public debt (D) with negative sign and indirectly through the credit (DEBTS) with a positive sign. It was also found that, as theoretically expected, the exchange rate ER and the minimum wage MW are more effective in displacing the aggregate demand than shifting the aggregate supply for an increase in ER or MW leads to a greater GDP. Dollar devaluation and higher minimum wage cause GDP to grow. Collecting the coefficients for each ...view middle of the document...

So, what can and should be done is to estimate the elasticities associated with each exogenous variable at each point of the sample period of time. Collecting then these elasticities one may identify the historical evolution of the relative importance of each exogenous variable in the concerted explanation of the endogenous variable past performance without the lacunae between actual and theoretical equilibrium endogenous variables values. Illustrating the point, the Figure nearby presents the time performance of the US GDPe elasticities in relation to each exogenous variable. This Figure shows that the most important exogenous variable in the US GDP formation is, or at least was in that sample, the fiscal policy for the elasticity EGDPFE is always the highest one, being above 0.5 at least in the last 25 years. The second one is the credit to the private sector, whose elasticity (EGDPDEBTS) rose during almost all the sample and exceeded 0.3 in the last five years.
On the opposite side, the GDP elasticity in relation to the monetary policy, measured by the public debt (EGDPD), as expected presents the negative sign but its effect on the GDP is near zero. This implies that the public debt, ceteris paribus DEBTS, causes a shift to the left on the aggregate supply and pushes the aggregate demand down but the combined effect on GDP was negligible. At each increase in the credit balance (DEBTS) the aggregate demand shifts upwards compensating the shift to the left of the aggregate supply in such a way that the GDP finds a new higher theoretical equilibrium level. Credit compensated the harmful effect of the public debt. However, credit cannot raise forever for it is limited by the borrowers’ capacity of paying their loans . By the way, if the credit supply availability overtakes its demand then the next crisis comes sooner. Credit cannot promote GDP expansion indefinitely as the fiscal policy (FE) does. If the intention is to expand GDP in order to create jobs, then the best way is the fiscal expenses FE without debt D – a Keynesian without debt fiscal policy. The other two aggregate demand shifters, the exchange rate and the minimum wage, present a fading performance: their elasticities, respectively EGDPER and EGDPMW, felt consistently into levels below the elasticity of GDP in relation to the...

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