Report
How would economic policy respond to a recession in the United States and the euro zone?
We are not expecting a recession in the United States or in the euro zone, in the absence of mechanisms that could trigger one. W e nevertheless examine what kind of economic policies could be implemented in the United States and the euro zone if there were a recession: The central bank’s rate cuts would be very limited in the United States and non-existent in the euro zone; the ensuing fall in long-term interest rates would be very small in both countries; The governments would therefore have to use fiscal policy to boost activity, despite the high level of public debt ratios; And to prevent the expansionary fiscal policy from driving up long-term interest rates, given the high debt ratios, the central banks would have to resume quantitative easing and monetise public debt. The trap is clear: the impossibility of significantly lowering interest rates in the event of a recession would impose another upward surge in public debt ratios and liquidity (the monetary base).
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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