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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.
- Winter '14