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The Evolving Postcrisis World


  • Grenville, Stephen

    (Lowy Institute for International Policy and Australian National University.)


A crisis provides an opportunity to examine how an economy works under pathological conditions. What are the lessons? Markets work well most of the time. That said, the global financial crisis has weakened faith in the market’s self-equilibrating qualities. Fiscal policy works well to offset weakening activity. The main focus is now on the timing of exit and unwinding the fiscal debt legacy. Monetary policy also works, and sharp falls in policy interest rates allow financial institutions to restore confidence in their balance sheets. The superior fundamental position of Asian countries made it feasible to push policy in a supportive direction. Globalization might have suffered a setback, but it is minor and temporary. Bagehot’s century-old dictum on how the authorities should handle a banking crisis—”lend freely”—still seems correct. International cooperation, even embryonic policy coordination, took some tentative but important steps forward, largely through the G20.

Suggested Citation

  • Grenville, Stephen, 2010. "The Evolving Postcrisis World," ADB Economics Working Paper Series 207, Asian Development Bank.
  • Handle: RePEc:ris:adbewp:0207

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    References listed on IDEAS

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    More about this item


    Fiscal policy; Monetary policy; policy interest rates; Globalization; banking crisis;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages


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