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Those tendencies are already present, and insufficient monetary response is likely to worsen them.
"We're talking about not just monetary response, we're talking about fiscal response, and we're talking about military response," Mr. Applegate said.
In 2008, both of them recognized that the financial crisis, if unaddressed, could lead to another depression, and they both supported an aggressive fiscal and monetary response.
And this monetary response, if it is to buttress expectations and confidence, needs I think to be delivered promptly as well as muscularly.
Yet the constraint of the zero lower bound suggests that there is, because deflationary pressure in one economy propagates thanks to insufficient monetary response.
The success of Beijing's overwhelming fiscal and monetary response to the global credit crunch has bolstered the confidence of state planners and put advocates of freer markets on the defensive.
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But right now, the Fed's answer seems to be: get used to nasty recessions and insufficient monetary responses, suckers.
Mr. Coxey's prescriptions, however, have since become conventional wisdom, notably in the fiscal and monetary responses to the most recent downturn.
Faced with a hit to economic demand, the textbook monetary policy response is to ease policy – cut interest rates further, do more quantitative easing or take steps to ease up bank lending.
Second, after the initial monetary policy response in fall 2008, it was fiscal policy that took the lead in preventing global economic free fall — with significant attempts to provide countercyclical stimulus in the United States, much of Western Europe, and China.
Well, the answer is that (a) it wasn't in a liquidity trap and (b) we had an active monetary policy response (in fact, before 1990 monetary policy generally caused the slumps, so all the Fed had to do was stop the punishment).
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