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Keywords:

  • exchange rate;
  • fiscal stimulus;
  • Global Financial Crisis
  • E62;
  • E63

Governments have reacted to the economic slowdown arising from the Global Financial Crisis by injecting a fiscal stimulus into their economies. This policy will be ineffective when the country has a floating exchange rate, because the resulting inflow of funds will cause the exchange rate to appreciate, offsetting the stimulus effect. The experience of the Great Depression has suggested a better package of policies to deal with a global slowdown.