Monetary Policy v/s Fiscal Policy
The Great Recession which set in 2007-08 claimed several victims on its way. The consideration of major central banks’ attitude of ‘Too-big-to-fail’ looked docile. The whimsical products were nothing but masks to cover risks. Rating agencies lost their reputation. Central banks of developed countries which were entrusted with monetary policies, were the most pitiable victims. They seemed to be working like a computer program where all that one has to do is to change the interest rates, adjust the money supply, and the algorithm would do the rest. Lack of regulation of banks across the globe coincided with excessive influence and size of the financial institutions. Hardly few days before the news officially broke out about the crisis, they had the faith that their fundamentals were strong to cover up the mess and recover. Non conventional tools were then used to patch up with the hope that the markets would recover. Unfortunately the old monetary policies have become futile and there is a pulsating, new thinking on alternative approaches. The surfacing of the financial crisis raised eyebrows regarding the theories, which were looked upon, in the pre-crisis era. One major liking was about the relationship between monetary and fiscal policies. A point had reached when monetary policies held huge influence and the central bankers were sure about tackling inflation. Here, fiscal policy had no role and the expectation from government was to keep its budget in stable and thereby avoiding huge fiscal deficits. Market was supposed to take care of everything without public(Government) influence. These notions now seem stupid. Central Bank policies have lost their excessive supremacy and have lost their aim. In the United States, the Central Bank which is the Federal Reserve, had been evolving stimulus programmes. The International Monetary Fund did its best in bringing out its older ideologies and documents on all aspects of support as...
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