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Fiscal and Monetary Policy During Downturns: Evidence from the G7

Author/Editor: Leigh, Daniel | Stehn, Sven Jari
Authorized for Distribution: March 1, 2009
Electronic Access: Free Full Text (PDF file size is 908KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper analyzes how fiscal and monetary policy typically respond during downturns in G7 countries. It evaluates whether discretionary fiscal responses to downturns are timely and temporary, and compares the response of fiscal policy to that of monetary policy. The results suggest that while responding more weakly and less quickly than monetary policy, discretionary fiscal policy is more timely than conventional wisdom would suggest, particularly in “Anglo-Saxon” countries, but the response differs substantially across fiscal instruments. Both fiscal and monetary policy are found to be subject to an easing bias, with more easing during downturns than tightening during upturns; and liable to easing in response to erroneously perceived downturns, many of which are subsequently revised to expansions.
 
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Series: Working Paper No. 09/50
Subject(s): Fiscal policy | Group of seven | Monetary policy | Government expenditures | Revenues | Economic stabilization | Economic models | Cross country analysis
Author's keyword(s): Fiscal stabilization | government revenue | government expenditure
 
English  
    Published:   March 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009050   Pages:   21
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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