Journal of Finance and Economics

Journal of Finance and Economics

ISSN: 2291-4951 (Print)    ISSN: 2291-496X (Online)

Volume 6 (2017), No. 1, Pages 22-34

DOI: 10.12735/jfe.v6n1p22

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Unemployment Orthodoxy: Fiscal or Monetary Policy? Case Study of France

Nahid Kalbasi Anaraki1 

1School of Business and Technology Management, Northcentral University, USA


To Cite this Article     Article Views: 682     Downloads: 459  Since deposited on 2017-08-31


France's economy has suffered from an unprecedented unemployment rate of above 10% over the past decade. The topic is widely debated among economists; while monetary economists argue contractionary monetary policy and austerity plans are the roots of high unemployment rate, New Keynesians believe fiscal policy and high corporate tax rates are the roots of problem. Lucas critique conjectures that monetary policy has only short term effects on real variables including unemployment. This study tests the hypothesis whether fiscal policy plays a more important role than monetary policy in shaping unemployment in France. The paper implements several econometric models to find out which group of policy variables is more effective in combating unemployment. Indeed, the study tests the hypothesis whether New Keynesian models have a better prediction power in explaining unemployment rate than New Classical models. Implementing quarterly data for the period of 1980-2015 and using OLS and GMM techniques the study finds out fiscal policy variables are the most important factors in shaping unemployment rate in France, supporting New Keynesian proposition.

JEL Classifications: E24, J23, C20, C50

Keywords: Fiscal policy, monetary policy, new Keynesian model, classical theory of unemployment, wage stickiness, unemployment benefit, Lucas critique

To Cite this Article: Kalbasi Anaraki, N. (2017). Unemployment orthodoxy: Fiscal or monetary policy? Case study of France. Journal of Finance and Economics, 6(1), 22-34.

Copyright © N. Kalbasi Anaraki

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This article is published under license to Science and Education Centre of North America. This is an Open Access article distributed under the terms of the Creative Commons Attribution 4.0 International License.

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Unemployment Orthodoxy: Fiscal or Monetary Policy? Case Study of France