Fiscal versus Monetary Stimulus: What Works?

Abstract

Actually both together work and can bring an economy on growth path, but general preference is towards Monetary Policy, because there is already a ‘Fiscal Overhang’ in the system. To satisfy interest groups, Governments across the world run Fiscal Deficits and hit the ceiling quickly, the ceiling which keeps inflation within control. But only when they raise the ceiling further and along with monetary policy, the economy turns around from recession or stagnation to growth. This only implies that there is still leakage in the system, in spite of best efforts in targeted spending.