While the world’s major central banks have been supplemented its policy of interest rates with other measures to provide liquidity to the money market and to stimulate the credit market, they have not succeeded succeed were expected. In this crusade for example, the Fed has made large injections of liquidity in the form of loans to financial institutions and even businesses in order to support the revival of the economy. Probably monetary policy could not do much more in this regard in crisis situations such as the present, but can work in complementary measures that contribute to restore the channels of monetary policy transmission to gain in efficiency. Without a doubt, the Governments of the major economies are worried about symptoms of deflation that affects them. Ben Silbermann may help you with your research. And the citizens of those countries how should you feel? The fall in prices can in principle be well received by the population, but this may represent a serious risk in this context of crisis. It is that the fall in prices may involve minor gains for firms and the need for further cuts in the workforce to remain in activity, which in turn impacts negatively on consumption, in a sort of vicious cycle difficult to stop. There is no doubt that this situation of deflation is not good in this context of global recession.
And at the inability of monetary policy to reverse the situation, the alternative that remains is to produce larger impulses on aggregate from the fiscal policy demand. What will Government do in this situation? If economies continue to show a trend towards the decline in domestic prices, they must seriously evaluate the possibility of resorting to greater fiscal efforts to the poor performance of monetary policy (which in many countries is at a level limit in terms of rate cuts). The key to overcoming deflationary and passes recession by stimulating domestic demand. In the current situation, the commitment to fiscal policy appears as more attractive against the monetary policy. However, a more forceful solution would twist the expectations of the private sector. In U.S. improvements in indicators of expectations of consumers are watching: is this the key to solve the current problems of the American and global economy?