How Should Macroeconomic Policy Respond to Foreign Financial Crises?

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Title How Should Macroeconomic Policy Respond to Foreign Financial Crises?
Author Makin, Anthony John
Journal Name Economic Papers
Editor Harry Clarke
Year Published 2010
Place of publication Australia
Publisher Wiley-Blackwell
Abstract This paper examines the impact of global financial crises on the Australian economy and how monetary and fiscal policy may be used to manage economic downturns that result. To do so, it presents a straightforward analytical framework incorporating financial wealth, exchange rate expectations, foreign demand and interest rate risk to analyse the key role played by the nominal exchange rate in insulating national income from the worst effects of foreign financial crises. In the event the economy is not fully insulated by exchange rate depreciation, it shows that, in principle, monetary policy is a superior instrument to fiscal stimulus for restoring aggregate demand to the full employment level. Since monetary policy is not handicapped by numerous problems that render fiscal stimulus less effective, it should normally be considered a sufficient instrument on its own.
Peer Reviewed Yes
Published Yes
Alternative URI http://dx.doi.org/10.1111/j.1759-3441.2010.00065.x
Volume 29
Issue Number 2
Page from 99
Page to 108
ISSN 0812-0439
Date Accessioned 2010-12-01
Language en_AU
Faculty Griffith Business School
Subject PRE2009-Macroeconomics (incl. Monetary and Fiscal Theory)
URI http://hdl.handle.net/10072/35679
Publication Type Journal Articles (Refereed Article)
Publication Type Code c1

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