<abstract xmlns="http://www.w3.org/1999/xhtml"><p>Background: With the occurrence of the crisis in 2007, which caused the largest economic contraction since the Great Depression in the thirties, it has become evident that the previous understanding of strategies, effects and roles of monetary and fiscal policy should be redefined. Objectives: The aim of this paper is to illustrate a possible expected change in monetary and fiscal policy in developed market economies that could occur as a consequence of the Great Recession. Methods/Approach: The paper provides a comparative analysis of various primary economic variables related to the developed OECD countries, as well as the empirical testing of the selected theoretical assumptions. Results: The changes in monetary policy refer to the question of raising target inflation, considering a possible use of aggregate price level targeting and paying attention to the role of central banks in suppressing the formation of an asset bubble. The success of fiscal policy in attaining stabilization depends on the size of possible fiscal measures and creation of automatic stabilizers. Conclusions: For the most part, monetary and fiscal policies will still stay unchanged, although some segments of these policies need to be improved.</p></abstract>

Background: With the occurrence of the crisis in 2007, which caused the largest economic contraction since the Great Depression in the thirties, it has become evident that the previous understanding of strategies, effects and roles of monetary and fiscal policy should be redefined. Objectives: The aim of this paper is to illustrate a possible expected change in monetary and fiscal policy in developed market economies that could occur as a consequence of the Great Recession. Methods/Approach: The paper provides a comparative analysis of various primary economic variables related to the developed OECD countries, as well as the empirical testing of the selected theoretical assumptions. Results: The changes in monetary policy refer to the question of raising target inflation, considering a possible use of aggregate price level targeting and paying attention to the role of central banks in suppressing the formation of an asset bubble. The success of fiscal policy in attaining stabilization depends on the size of possible fiscal measures and creation of automatic stabilizers. Conclusions: For the most part, monetary and fiscal policies will still stay unchanged, although some segments of these policies need to be improved.

The Impact of the Great Recession on Monetary and Fiscal Policy in Developed Market Economies

University of Montenegro, Faculty of Economics, Podgorica, Montenegro

Business Systems Research Journal

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Background: With the occurrence of the crisis in 2007, which caused the largest economic contraction since the Great Depression in the thirties, it has become...

The Impact of the Great Recession on Monetary and Fiscal Policy in Developed Market Economies

Article Category: Economic and Business Systems Research Articles

Published Online: May 09, 2015

Page range: 56 - 71

Received: Mar 01, 2014

Accepted: Sep 28, 2014

DOI: https://doi.org/10.1515/bsrj-2015-0004

© by Damir Šehović

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.