Fiscal needs monetary and monetary needs fiscal…increasingly so

March 23rd, 2015 at 11:04 am

In weak economies, these two policy behemoths are complements, not substitutes. Over at PostEverything–it’s a summary from a chapter from my book, out in a few weeks!

Special tabular bonus for OTE’ers:


Source: Bernstein, The Reconnection Agenda: Reuniting Growth and Prosperity (forthcoming)

Very important to be in box 1 in downturns. We started out there but too quickly moved to box 7, which is pretty much the austerity box these days, as central banks push toward more growth while governments push the other way through fiscal consolidation (e.g., Europe, though they’ve also had bouts of box 8, as their ECB was slow and spotty out of the gate). In 2014, the US moved from box 7 to box 4, and that helped set the stage for the labor market improvements that began last year.

Going forward, the concern is that the Fed moves us from box 4 to box 5 too soon. And, of course, with sequestration and the austere R budgets out there, that means box 6 is not out of the question.

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2 comments in reply to "Fiscal needs monetary and monetary needs fiscal…increasingly so"

  1. Resolved says:

    Have you been sworn to silence on the TPP?

    • Jared Bernstein says:

      No one silences OTE! Just crunching on other stuff, but I’ll try to revisit TPP in short order. Just noted a Goldman Sachs analysis that the appreciating dollar could subtract 0.75 ppt from growth over the next couple of years. The $’s current appreciation is not driven by currency interventions by trading partners but it’s still a teaching moment for those who don’t think it matters when competitors drive up the $.