Policy Responses — Asia

John Malcolm Dowling and Pradumna Bickram Rana

Chapter 6 in Asia and the Global Economic Crisis, 2010, pp 80-100 from Palgrave Macmillan

Abstract: Abstract The IMF has argued that fiscal policy can make a significant contribution to reducing the duration of recessions associated with financial crisis. In effect, governments can break the negative feedback between the real economy and financial conditions by acting as a ‘spender of last resort’. But this presupposes that public stimulus can be delivered quickly.1 There are several factors to consider regarding how the stimulus can be best administered, including the size of the fiscal deficit, the likely impact of higher deficits on the exchange rate and investors’ perceptions of risk and a downgrade of credit ratings making it more costly to borrow. There may also be implementation constraints both in the institutional capacity to ramp up spending quickly and in the delivery of the funds to appropriate subcontractors and implementing agencies. It is also important to consider the kinds of spending that are being undertaken and the probable size of the multipliers that result from additional public spending. Certainly more open economies are likely to have smaller fiscal multiplier than more closed economies because of their greater leakage through international trade and investment channels. Also multipliers will be larger the greater the complementarities between public and private goods. Multipliers will be larger if public goods are produced that are complementary with private goods and smaller if public goods are produced that are substitutes with private goods (see Graves, 2009).

Keywords: Interest Rate; Foreign Direct Investment; Monetary Policy; Credit Default Swap; Asian Economy (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-30702-5_6

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DOI: 10.1057/9780230307025_6

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