It depends on the kind of recession. You could definitely argue that a supply shock recession (which will typically have stagflation), would only be made worse with monetary stimulus. Of course,...
It depends on the kind of recession. You could definitely argue that a supply shock recession (which will typically have stagflation), would only be made worse with monetary stimulus.
Of course, COVID is both a supply and demand shock, but probably a stronger demand shock.
If we look at the recent past, money printing doesn't seem like it will lead to "high" inflation in the short-term. But recently I've read 2 articles that advocate that we can use monetary policy...
If we look at the recent past, money printing doesn't seem like it will lead to "high" inflation in the short-term. But recently I've read 2 articles that advocate that we can use monetary policy for "free", meaning without any downside. I think this insane mentality will probably lead to a blowup in the future.
In a rational and perfect world monetary policy shouldn't have any effect, but we don't live in that world. However, it's good to keep in mind why monetary policy works. We can't just print our way to prosperity.
Fiscal policy is different because you are using real resources (usually borrowed from the future) to soften a downturn. The problem is that some countries do not have a fiscal buffer to spend so they will borrow even more. The EU seems to be responding to this economic downturn as a block vs a collection of individual states so maybe the countries in worse shape won't suffer so much (I remember checking the debt yields on countries like Greece and Portugal and the pandemic started to pick up and they were already going by a significant amount). Let's hope we don't have revisit the 2011 debt problem.
I think it's nonlinear. There has to be some amount of money creation that's too much, but smaller amounts might essentially be free. But where that tipping point might be is hard to say. It's not...
I think it's nonlinear. There has to be some amount of money creation that's too much, but smaller amounts might essentially be free. But where that tipping point might be is hard to say. It's not obvious that the US is close to it.
I’m no economist but it seems to me that a stimulus package can hardly lead to inflation in a scenario of catastrophic recession.
It depends on the kind of recession. You could definitely argue that a supply shock recession (which will typically have stagflation), would only be made worse with monetary stimulus.
Of course, COVID is both a supply and demand shock, but probably a stronger demand shock.
If we look at the recent past, money printing doesn't seem like it will lead to "high" inflation in the short-term. But recently I've read 2 articles that advocate that we can use monetary policy for "free", meaning without any downside. I think this insane mentality will probably lead to a blowup in the future.
In a rational and perfect world monetary policy shouldn't have any effect, but we don't live in that world. However, it's good to keep in mind why monetary policy works. We can't just print our way to prosperity.
Fiscal policy is different because you are using real resources (usually borrowed from the future) to soften a downturn. The problem is that some countries do not have a fiscal buffer to spend so they will borrow even more. The EU seems to be responding to this economic downturn as a block vs a collection of individual states so maybe the countries in worse shape won't suffer so much (I remember checking the debt yields on countries like Greece and Portugal and the pandemic started to pick up and they were already going by a significant amount). Let's hope we don't have revisit the 2011 debt problem.
I think it's nonlinear. There has to be some amount of money creation that's too much, but smaller amounts might essentially be free. But where that tipping point might be is hard to say. It's not obvious that the US is close to it.