FISCAL AND FINANCIAL RESPONSES TO THE ECONOMIC DOWNTURN

Ray Barrell and Dawn Holland

National Institute Economic Review, 2010, vol. 211, issue 1, 115-126

Abstract: The financial crisis that started in the summer of 2007 and worsened in the autumn of 2008 has involved a repricing of risk and a reduction in the level of potential output in the OECD of between 3 and 5 per cent. In addition it has caused a major recession, leaving output gaps in the UK, the US and the Euro Area currently standing at 3 to 5 per cent of potential GDP despite active policy responses. We show that monetary policy (and especially quantitative easing) has increased output growth in the US and the UK by half a per cent in 2009, and will do the same in 2010Q1. Fiscal policy is also shown to have been effective, but we argue that more could have been done if unfounded worries about excess borrowing had not arisen.

Keywords: Financial crises; potential output; fiscal policy; monetary policy; quantitative easing (search for similar items in EconPapers)
Date: 2010
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Journal Article: Fiscal and Financial Responses to the Economic Downturn (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:niesru:v:211:y:2010:i:1:p:115-126

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