Fiscal and Monetary Policy During Downturns: Evidence From the G7
IMF Working Papers, March 1, 2009
Source details
- Canonical URL
- Fiscal and Monetary Policy During Downturns: Evidence From the G7
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Bibliographic details
- Authors: Sven Jari Stehn, Daniel Leigh
- Published: March 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451871982.001
Summary of purpose and scope
- Analyzes how fiscal and monetary policy typically respond during downturns in G7 countries.
- Evaluates whether discretionary fiscal responses to downturns are timely and temporary.
- Compares the response of fiscal policy to that of monetary policy.
Key findings
- Discretionary fiscal policy responds more weakly and less quickly than monetary policy.
- Discretionary fiscal policy is more timely than conventional wisdom suggests, particularly in “Anglo-Saxon” countries.
- The fiscal response differs substantially across fiscal instruments.
- Both fiscal and monetary policy exhibit an easing bias:
- There is more easing during downturns than tightening during upturns.
- Policies are liable to easing in response to erroneously perceived downturns; many such perceived downturns are subsequently revised to expansions.
Subject focus and keywords
- Subject: Current spending, Expenditure, Fiscal policy, Fiscal stance, Fiscal stimulus, Output gap, Production
- Keywords: Current spending, discretionary fiscal policy, downturn, downturn quarter, Europe, fiscal policy decision, fiscal policy error, Fiscal stabilization, Fiscal stance, Fiscal stimulus, government expenditure, government revenue, monetary policy, monetary policy Respond, monetary policy response, Output gap, WP