Davies, New fiscal theory ?

Fiscal policy is once again seen as effective in stimulating aggregate demand, especially when interest rates are constrained by the zero lower bound. 

 The Keynesian multiplier is viewed as unusually high in such periods.

Monetary policy is believed to be severely constrained in the case of a new recession, so fiscal policy would be the only game in town.



Gavyn Davies, FT 6 November 2016

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