 The road to recovery: Fiscal stimulus, financial sector rehabilitation, and potential risks aheadZhiwei Zhang and Wenlang Zhang Journal of Asian Economics, 2011, vol. 22, issue 4, 311-321 Abstract: The worst of the global financial crisis is behind us, but the trajectory to recovery varies widely across economies. Employing a dynamic structural multi-country model with a financial accelerator, this paper studies the roles of two important policy actions in economic recovery: fiscal stimulus and financial sector rehabilitation. The main finding is that while both factors contribute to economic recovery, the former is likely to be less effective from a medium-term perspective and may generate some negative side effects. This suggests that policy priority should be on continued financial sector rehabilitation, particularly in advanced economies. Moreover, international policy co-ordination is beneficial as it can generate spill-over effects to regional economies. We also study a potential risk to economic recovery down the road: an over-estimation of the post-crisis potential output by the monetary authorities in advanced economies. It is found that this may lead to an overly accommodative monetary policy stance, which could lead to a resurgence in inflation and hence will darken the medium-term growth prospects of the world economy. Keywords: GIMF; model; Financial; accelerator; Fiscal; stimulus; Financial; rehabilitation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:22:y:2011:i:4:p:311-321 Access Statistics for this article Journal of Asian Economics is currently edited by C. Wiemer More articles in Journal of Asian Economics from Elsevier |
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