An optimal stimulus depends on various economic

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Unformatted text preview: iscal policy. • An optimal stimulus depends on various economic conditions, on projection and assessments of likely future conditions which can be best judged by the central banks’ large and sophisticated team of analysts and economists. Fiscal policies are often influenced by the political considerations which might prove to be counterproductive. • A poorly crafted fiscal stimulus would have little short term economic benefit and could do long-term economic harm in term of huge deficits. • Functioning of automatic fiscal stabilizers which arise inevitably from the design of tax and transfer systems. In the last few years, the consensus has begun to converge upon the viewpoint that discretionary or active countercyclical fiscal policy can be effective and potentially timelier than monetary policy in counteracting the harm of economic downturns. Cases when fiscal stimulus could be essential: • If a sharp economic downturn appears imminent, it can boost economic activity more quickly. • If the central banks have already lowered its policy rates close to zero leaving limited room for further decline and scope for further stimu...
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This document was uploaded on 01/14/2014.

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