The relative effectiveness of fiscal and monetary policy on inflation and unemployment: the Australian experience

In this study, we apply the J-test to a simple IS-LM model to test the relative effectiveness of fiscal and monetary policy on inflation and unemployment for the Australian economy over the period 1961-1990. Empirical ecvidence shows that there exists no significant relationship between the supply of (or demand for) money with inflation and unemployment. It is fiscal policy which is effective in managing both inflation and unemployment.