Testing Keynesian Proposition And Ricardian Equivalence: More Evidence On The Debate

This paper takes its motives from recent literature concerning the debate on the Keynesian proposition and the Ricardian equivalence, using data of the Greek economy and applying cointegration analysis, Granger causality tests and impulse response functions (IRF). The aim of the econometric methodology is to derive robust results by means of using alternative quantitative techniques. The empirical analysis shows the existence of dynamic relationships between the budget deficit and the interest rate, indicating a two-way causality between deficits and interest rates. The findings of Granger tests and IRFs contradict the view of Ricardian equivalence that government deficits do not influence the behavior of interest rate. Experimenting with the four-variable system (R, D, Y, P), IRF results show that in the case of Greece the budget deficit positively affects the inflation rate. The evidence that budget deficits exert positive effects on interest rates and inflation is consistent with the rationale of the Keynesian proposition

Do interest rates predict real economic activity?

This paper employs a structural VAR procedure to test some fundamental propositions of the business cycle using a developing economy framework. The focus of the paper is on KBC, MBC and RBC theories as well as on the alternative view, which has been propagated mainly by Sims. The empirical analysis intends to report extensive evidence on the dynamics between money, output, interest rates and prices. The results suggest that the effects of system shocks conform to the alternative view supporting the central role of interest rates. Interest rate shocks explain a majority of the variation in money, output and prices. The results are generally robust across different orderings, alternative interest rate measures and various sample periods.

O circuito finance-investimento-poupança- funding em economias abertas

<abstract language="eng">The finance-investment-savings-funding circuit in open economies. On monetary economies the Finance-Investment-Savings-Funding circuit (F-I-S-F) prevails. Investment precedes savings. This circuit was worked out for a closed economy. This study seeks to demonstrate that the circuit F-I-S-F also prevails for open economies. A second point studied in this paper relates the relationship between budget deficits and savings restriction for investment. Conclusions highlight that the circuit F-I-S-F prevails for open economies and that budget deficits do not cause savings restriction for investment. In some situations budget déficits transfer the effects of investment for national savings formation from domestic economy to the rest of the world