New view
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Fiscal policy is often beneficial for effective countercyclical policy as a complement to
monetary policy.
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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.
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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.
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More sustained stimulus, especially if it is in the form of effectively targeted investments
that expand aggregate supply, may be desirable in many contexts.
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There may be larger benefits to undertaking coordinated fiscal action across countries.
