Taking a Second Look at Economic Stabilization Policy: Appraisal and issues

Abstract

This paper focuses on the expediency of monetary policy and fiscal policy. It draws from a background of arguments of different schools of thought on which of the two approaches is better suited for controlling the economy of nations in order to achieve desirable macroeconomic performance levels in the light of the recent wave of globalisation. Over time, the use of monetary policy and fiscal policy to moderate the workings of the economy of nations has been popular. However, in recent years, there are divergent views on which of these two approaches is better suited for the smooth operation of any economy, due to the different noticeable effects of these policies when applied in some countries in respect of achieving full employment and price stability. The conflict between the desire to achieve full employment and price level stability
simultaneously calls for a rethink of stabilisation policy.

Keywords: Monetary policy, Fiscal policy, Fiscal neutrality, Fiscal balance.