Governments Can Boost Economy During Crises by Coordinating Fiscal and Monetary Policies
During the global financial crisis, countries saw a greater boost in their economies when using both expansionary monetary and fiscal policies together. This combination helped increase gross domestic product more effectively by limiting investment crowding-out and boosting net exports. Before the crisis, the fiscal multiplier was less than 1, but during the crisis, it was greater than 1 due to different interactions between fiscal and monetary policies. The study used data from 21 countries and found that the policy interaction during the crisis had positive effects on the economy.