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Substantially less work has been conducted this framework for countries other than the States. 2 Consequently, it is uncertain whether Louis approach can be used universally in evaluating the economic impact of monetary and fiscal actions on income growth. This study investigates the generality of the St. Louis approach by applying it to other countries. Based on evidence generated from the study of six developed countries-Canada, France, Germany, Japan, the U.nited Kingdom and the United Stateswe conclude that money growth is more important than fiscal actions in determining GNP growth. Moreover, our results are robust across the "fixed" and "flexible' exchange rate regimes that characterized the past two decades ESTIMATING THE ST. LOUIS LQI. %'IL\ t(BO's (01\IBII S The St. Louis equation typically estimated for the United States consists of only three variables: nominal 2 Two exceptions are Michael W7, Keran, "Monetary and F'iscal influences on Economic Activity: The Foreign Experience." this Review

INCE its introduction in 1968 to investigate the relative inmpact of mnonetary and fiscal actions on economic activity, the St. Louis equation has been the focus of considerable criticism. Much of this criticism stemmed from the fact that Andersen and Jordan's conclusions were substantially different from those of the larger econometric models, in particular, they found that changes in the money stock have a significant, lasting impact on nominal income, while changes in high-employment government expenditures and revenues, although having a short-run impact, have no significant, lasting effect. Criticism of the St. Louis equation generally has fallen into two categories: the specification of the equation and the use of the polynomial distributed lag (PDL) estimation technique. 2 The second category has Thc authors would like to thank R. Caner iii!! and Tlmo,nas B. Fomby for their suggestions' and eo,nnient.s. mThe St. Louis equation first appeared imi Leonalt C. Amidersemi amid Jerry L. Jordan, Momietary amidl Fiscal Actiomis: A Test of Their Relative Imuportance 1mm Fcomiomic Stahilizatiosm,'' this Review (November 1968), pp. 1-24. 2 Tliere have beemi three muajor criticismns of the specification of the St. Louis equation. First, simice time equation is miot derived cxmilicitiy fromii a structural macroeconommc model. relevamit exogenous, right-hand-side variables mnay be excluded, amid, as a result, time equation muay lie misspecified. See, for example. Fm'amico Modighiani amid Albert Ando. "lmnpacts of Fiscal Actions On Aggregate Income and the Monetarist Csmntroversy: Theory amid Evidence."

Similarly, Schuh, using the nominal agricultural export and exchange rate data plotted in chart 1, concludes that "the export boom of the lErOs is seen to be closely tied to the fall in the value of the dollar. The decline in our export performance is closely associated with the rise in the value of the dollar in the 1980s." OS/as S. Batten is a senior economist and Michael 11 Be/on gia is an economist at the Federal Resenie Bank of St Louis. Sarah R. Driver provided research assistance. 'Chattin and Lee (1983), p. 19.

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Pegged Exchange Rates and Managed Float,'' in Karl Bruoner am I All an H. Meltze r, eds., Public Po lie ie in 0 pc0 Leo tic,'tries. Cai'negie-Rnehester Conference Series on Public Policy, suppl eme nt to theJo urn ci ifMo tie to rq Er on n toirs, Vol unit' 9 (1978), pp. 111-40; II. Robert mleller ,oid Mohsin S. Kahn, ''The Deniai,d for International Reserves Under Fixed and Floating F xelsange Rates,'' International Mon etan' Fi incI Staff Pope ,.s (Dece rnher 1978), pp. 623~49 Nasser Saidi, ''The Square-Root Law, Uncertainty and line rnati0!ial Reserves Un (IC r .A It e rn atsve Re' ginie 5,''

N a previous issue of this Review, we pn-ovided some evidence that the policy conclusions of the St. Louis equation an-c robust with respect to both the specification of its lag structure and the imposition of polynomial restn-ictions: monetary policy has a significant long-run effect on aggn-egate income, while fscal policy does not.' This result is imnportant because it provides evidence that these policy conclusions an-c not dependent on the equation's econometric specification, a subject of continued debate since the equation fin-st appeared. This conclusion, however, was based on the use of only one technique -developed by Pagano and Han'tley 11981)-for selecting the appropriate lag stnuctun-e amid polynomial degree. Consequently, the general sensitivity of the policy conclusions to the specification of lag lengths and polvnomnial degnees remains an issine.The pun-pose of this an-ride is to use van'ious nnodel selection criteria to investigate the impact of model specification on the polic conclusions dr-awn fr-mn the St. Louis equation .~The evidence pn-esented hen-c 2 Since there has been an increased interest in techniques for specifying lag lengths of finite distributed lag models, our results, although data and model specific, should provide an experiential starting point for those interested in using these procedures.demonstrates that these conclusions are extn'emely robust with n'espect to changes in either the lag stnucture or the polynomial restn-ictions. Thus, arguments that the general policy conclusions of the St. Louis equation are dependent upon an ad hoc econometric specification are without nien'it.