Abstract
From the "new consensus in macroeconomics" (NCM) framework, this paper derives a different set of policy proposals. The NCM has become associated with the use of interest rate policy to target inflation and to reach a zero output gap, and to ignore fiscal policy. This paper argues that interest rate policy is an ineffectual policy instrument. It proposes that interest rates should be set broadly in line with the rate of growth. Fiscal policy can be used to partially address short-run fluctuations in economic activity through a combination of automatic fiscal stabilizers and discretionary policy. The general fiscal stance should be set to be consistent with a high level of economic activity along the lines of "functional finance." The task remains to find a coherent policy for the containment of inflation.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.