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Abstract

The paper considers the case for an internationally coordinated further fiscal stimulus during the second half of 2009. Although this makes some of the analysis period-specific, most of the issues and principles considered are timeless. For a fiscal stimulus to be both effective there must be idle resources due to a failure of effective demand. For it to be desirable, there must be no alternative policy instruments (including monetary policy) for boosting demand. There must be no complete financial crowding out and no complete direct crowding out, through Ricardian equivalence-debt neutrality, through Minsky equivalence or through a high degree of substitutability between private and public exhaustive expenditure in private preferences or production possibilities. Finally, for international coordination to be desirable, there must be cross-border externalities from national fiscal stimuli. The paper considers each of these conditions in turn. Copyright 2010, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/oxrep/grp038
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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 26 (2010)
Issue (Month): 1 (Spring)
Pages: 48-70

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Handle: RePEc:oup:oxford:v:26:y:2010:i:1:p:48-70

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Web page: http://oxrep.oupjournals.org/

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Find related papers by JEL classification:

• E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
• E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
• E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
• F3 - International Economics - - International Finance
• H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
• H5 - Public Economics - - National Government Expenditures and Related Policies
• H6 - Public Economics - - National Budget, Deficit, and Debt

References

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1. Willem Buiter, 2009. "Negative Nominal Interest Rates: Three ways to overcome the zero lower bound," FMG Discussion Papers dp636, Financial Markets Group.
   
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   • Buiter, Willem H., 2009. "Negative Nominal Interest Rates: Three ways to overcome the zero lower bound," CEPR Discussion Papers 7346, C.E.P.R. Discussion Papers.
2. Roberto Perotti, 2008. "In Search of the Transmission Mechanism of Fiscal Policy," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 169-226 National Bureau of Economic Research, Inc.
   
   • Roberto Perotti, 2007. "In Search of the Transmission Mechanism of Fiscal Policy," NBER Working Papers 13143, National Bureau of Economic Research, Inc.
3. Alan S. Blinder, 1985. "Credit Rationing and Effective Supply Failures," NBER Working Papers 1619, National Bureau of Economic Research, Inc.
   
   • Blinder, Alan S, 1987. "Credit Rationing and Effective Supply Failures," Economic Journal, Royal Economic Society, vol. 97(386), pages 327-52, June.
4. John F. Cogan & Tobias Cwik & John B. Taylor & Volker Wieland, 2009. "New Keynesian versus Old Keynesian Government Spending Multipliers," Working Paper Series 1090, European Central Bank.
   
   • Cogan, John F. & Cwik, Tobias & Taylor, John B. & Wieland, Volker, 2010. "New Keynesian versus old Keynesian government spending multipliers," Journal of Economic Dynamics and Control, Elsevier, vol. 34(3), pages 281-295, March.
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   • Cogan, John F. & Cwik, Tobias J. & Taylor, John B. & Wieland, Volker, 2009. "New Keynesian versus old Keynesian government spending multipliers," CFS Working Paper Series 2009/17, Center for Financial Studies (CFS).
   • John Cogan & Tobias Cwik & John Taylor & Volker Wieland, 2009. "New Keynesian Versus Old Keynesian Government Spending Multipliers," Discussion Papers 08-030, Stanford Institute for Economic Policy Research.
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5. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
6. Antonio Spilimbergo & Steve Symansky & Olivier Blanchard & Carlo Cottarelli, 2009. "Fiscal Policy For The Crisis," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 10(2), pages 26-32, 07.
   
   • Antonio Spilimbergo & Steven A. Symansky & Carlo Cottarelli & Olivier J. Blanchard, 2009. "Fiscal Policy for the Crisis," IMF Staff Position Notes 2008/01, International Monetary Fund.
   • Blanchard, Olivier J & Cottarelli, Carlo & Spilimbergo, Antonio & Symansky, Steven, 2009. "Fiscal Policy for the Crisis," CEPR Discussion Papers 7130, C.E.P.R. Discussion Papers.
7. Ethan Ilzetzki & Enrique G. Mendoza & Carlos A. Végh, 2010. "How Big (Small?) are Fiscal Multipliers?," CEP Discussion Papers dp1016, Centre for Economic Performance, LSE.
   
   • Ilzetzki, Ethan & Mendoza, Enrique G. & Végh, Carlos A., 2013. "How big (small?) are fiscal multipliers?," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 239-254.
   • Ethan Ilzetzki & Enrique G. Mendoza & Carlos A. Végh Gramont, 2011. "How Big (Small?) are Fiscal Multipliers?," IMF Working Papers 11/52, International Monetary Fund.
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Citations

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Cited by:

1. Sergio Sola, 2013. "Temporary and Persistent Fiscal Policy Shocks," IHEID Working Papers 06-2013, Economics Section, The Graduate Institute of International Studies.
2. Lejour, Arjan & Lukkezen, Jasper & Veenendaal, Paul, 2010. "Sustainability of Government Debt in the EU," MPRA Paper 30139, University Library of Munich, Germany, revised 07 Jun 2010.
3. Marek Dabrowski, 2009. "The Global Financial Crisis: Lessons for European Integration," CASE Network Studies and Analyses 0384, CASE-Center for Social and Economic Research.
   
   • Dabrowski, Marek, 2010. "The global financial crisis: Lessons for European integration," Economic Systems, Elsevier, vol. 34(1), pages 38-54, March.
4. Salvatore Dell'Erba, Sergio Sola, 2013. "Fiscal Policy, Interest Rates and Risk Premia in Open Economy," IHEID Working Papers 05-2013, Economics Section, The Graduate Institute of International Studies.

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