Friday, October 7, 2016

New view

  1. Fiscal policy is often beneficial for effective countercyclical policy as a complement to monetary policy.
  2. Discretionary fiscal stimulus can be very effective and in some circumstances can even crowd in private investment. To the degree that it leads to higher interest rates, that may be a plus, not a minus.
  3. Fiscal space is larger than generally appreciated because stimulus may pay for itself or may have a lower cost than headline estimates would suggest; countries have more space today than in the past; and stimulus can be combined with longer-term consolidation. 
    1. More sustained stimulus, especially if it is in the form of effectively targeted investments that expand aggregate supply, may be desirable in many contexts.
    2. There may be larger benefits to undertaking coordinated fiscal action across countries.