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Counter-cyclical Economic Policy

  • Douglas Sutherland
  • Peter Hoeller
  • Balázs Égert
  • Oliver Röhn

What changes are needed to make counter-cyclical economic policy more effective in the aftermath of the recent crisis? An important lesson from the severity of the recent recession is that policy in various areas will have to be more prudent during upswings and to build in greater safety margins to be able to react to large adverse shocks. In the period leading up to the crisis, cycles became more synchronised, while asset prices became more volatile. Recent events also underline the difficulties encountered in detecting and reacting to asset price misalignments. The confluence of the turn in asset prices, financial market crisis and slump in trade challenged the ability of counter-cyclical policies to cope with the severe downturn, although experience reveals that countries where the fiscal position was sound and inflation under control were better able to cushion the shocks. Furthermore, robust micro-prudential regulation can help the financial sector withstand shocks. In this light, existing policies should be strengthened to ensure that there is room for manoeuvre going into a downturn. In order to deal with similar shocks in the future, macroeconomic and financial sector policies should consider precautionary policy settings and macro-prudential regulation to address systemic threats to stability. Politique économique contracyclique Quels changements sont necessaires pour que la politique economique contracyclique soit plus efficace a l.issue de la crise ? On peut tirer une lecon essentielle de la recession recente : il faudra que, dans plusieurs domaines, la politique economique soit plus prudente en periode d.expansion et comporte plus de marges de securite pour pouvoir reagir a un choc de grande ampleur. Avant la crise, on a pu observer une plus grande synchronisation des cycles et une plus forte volatilite des prix des actifs. Les evenements recents mettent egalement en lumiere les difficultes rencontrees pour detecter les dephasages des prix des actifs et pour y reagir. La conjonction d.un retournement des prix des actifs, d.une crise financiere et d.un effondrement des echanges fait que les mesures contracycliques n.ont plus ete a meme de contrecarrer une profonde recession. Cela etant, l.experience montre que les pays dont les finances publiques etaient saines et l.inflation maitrisee ont pu mieux amortir les chocs. De plus, une solide reglementation microprudentielle peut aider le secteur financier a resister en cas de choc. C.est pourquoi il faudrait renforcer les politiques actuelles pour conserver une marge de manoeuvre face a une recession. Pour parer a des chocs similaires a l.avenir, les mesures macroeconomiques et celles applicables au secteur financier devraient s.appuyer sur un cadre d.action guide par la precaution et sur une reglementation macroprudentielle afin d.ecarter les menaces pour la stabilite qui ont un caractere systemique.

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File URL: http://dx.doi.org/10.1787/5kmfw36tj97h-en
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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 760.

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Date of creation: 05 May 2010
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Handle: RePEc:oec:ecoaaa:760-en
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