Report
Patrick Artus

What economic policy in OECD countries the next time things go wrong?

The question of the economic policy reaction the next time there is a recession are starting to be seriously discussed in OECD countries. The economic policy choice made in the recent period in the OECD has been to keep fiscal and monetary policies expansionary despite the return to low unemployment in order to reduce the risk of recession as much as possible. The consequence of this choice is that if a recession nevertheless occurs, the economic policy leeway is normally very small. So what can be done if a recession occurs despite the stimulatory economic policies? Increasing fiscal deficits and public debt further? This would make it necessary, even more than in the past, to keep interest rates very low or zero and to use quantitative easing; Using "helicopter money" in one form or another ( this is the proposal made recently by BlackRock), i.e. central banks give households money that will never be repaid? This proposal seems revolutionary, but this is in reality perpetual quantitative easing: if the government runs up a fiscal deficit that is used to provide households with income, if the government bonds issued are bought by the central bank, and if, when they mature, the new government bonds are also bought by the central bank, there is indeed helicopter money. Therefore, the helicopter money proposal only consists in giving additional income to household in countries where governments refuse to run up fiscal deficits . Altogether, whatever the choice made, the only available choice is a monetised fiscal expansion; the risks associated with this choice remain to be identified.
Provider
Natixis
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.

 

Analysts
Patrick Artus

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