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Fiscal And Financial Responses To The Economic Downturn

Author

Listed:
  • Ray Barrell

    (National Institute of Economic and Social Research, r.barrell@niesr.ac.uk)

  • Dawn Holland

    (National Institute of Economic and Social Research, d.holland@niesr.ac.uk)

Abstract

The financial crisis that started in the summer of 2007 and worsened in the autumn of 2008 has involved a repricing of risk and a reduction in the level of potential output in the OECD of between 3 and 5 per cent. In addition it has caused a major recession, leaving output gaps in the UK, the US and the Euro Area currently standing at 3 to 5 per cent of potential GDP despite active policy responses. We show that monetary policy (and especially quantitative easing) has increased output growth in the US and the UK by half a per cent in 2009, and will do the same in 2010Q1. Fiscal policy is also shown to have been effective, but we argue that more could have been done if unfounded worries about excess borrowing had not arisen.

Suggested Citation

  • Ray Barrell & Dawn Holland, 2010. "Fiscal And Financial Responses To The Economic Downturn," National Institute Economic Review, National Institute of Economic and Social Research, vol. 211(1), pages 115-126, January.
    • Handle: RePEc:sae:niesru:v:211:y:2010:i:1:p:115-126
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    Cited by:

    1. Iana Liadze & Ray Barrell & Dawn Holland, 2010. "Accounting for UK economic performance 1973-2009," National Institute of Economic and Social Research (NIESR) Discussion Papers 359, National Institute of Economic and Social Research.
    2. Euroframe – European Forecasting Research Association for the Macro-Economy, 2010. "Economic Assessment of the Euro Area. Winter Report 2010," WIFO Studies, WIFO, number 40915, February.

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