>FLASH ECONOMICS (ECONOMIC RESEARCH)

What economic stimulus policies could still be used?

Despite the highly stimulatory economic policies adopted, the prospects for growth and unemployment are not good. It is true that one must wait for the effects of these policies to appear, but it can be feared that they will not be very effective.

Governments and central banks are therefore considering whether other stimulatory policies could be used (e.g. asset purchases by central banks, support for distressed sectors).

What room for manoeuvre remains, what policies have not yet been used?

We believe that further increases in fiscal deficits are likely to be counterproductive, and that even unconventional monetary policies are ineffective, except those that reduce the cost of long-term funding. Indeed, one of the few possible methods for stimulating the economy that has not been used is to bring down the interest rates on long-term funding and the risk premia that increase these interest rates, in particular by lowering the cost of long-term funding for banks and restoring liquidity in the corporate bond and CDS markets.

The major OECD countries have all adopted extremely stimulatory economic policies: very large fiscal deficits (Charts 1A and B, and it is likely that, based on the growth rates that can be expected, the fiscal deficits for 2010 will be higher than those expected at present), very low central bank intervention rates (Chart 2A), and very rapid monetary creation.

To see full report: FLASH ECONOMICS