Like expansionary fiscal policy, expansionary monetary policy always generates an intertemporal trade-off

When an expansionary fiscal policy is implemented, it is well known that a restrictive fiscal policy will have to be used later to restore fiscal solvency. The aim is to smooth demand: it is weaker in recessions and stronger in expansion periods. But it must be realised that the same holds for an expansionary monetary policy. In the short term, it stimulates demand by driving down risk-free interest rates and risk premia; but in the medium term it weakens demand since savers have bought financial assets during periods of weak activity that have low yields and abnormally low risk premia, leading to a decline in income from savings after recessions. Expansionary monetary policy, like expansionary fiscal policy, smoothes demand and corresponds to an intertemporal trade-off .