An Analysis of the Asymmetrical Effects of Fiscal Policy between the United States and Europe.

This paper investigates the asymmetries between the United States and Europe in terms of differences in structural characteristics as these are captured by the elasticities of the underlying LM and AS curves. The AS elasticity is further decomposed into those factors that underlie Okun's Law and those that affect the inflation-unemployment relationship. With respect to the latter, two reasons are usually offered as the causes of the asymmetries between the United States and Europe. These are differences in labor- market organization and differences in money-market characteristics. The validity of these hypotheses is tested and the quantitative importance of each one is assessed using a multicountry model. Copyright 1988 by Blackwell Publishing Ltd