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Getting Fiscal Stimulus and Central Bank Independence In Synch

Forecasts for global GDP growth are up this year, because fiscal policy has been relaxed. But if the advanced economies achieve more robust growth, it will be because large fiscal stimulus is facilitated by ultra-loose monetary policy.

LONDON – Until early last autumn, the global economy seemed stuck in a deflationary trap. For five years in a row, the International Monetary Fund had downgraded its medium-term growth forecast. In February 2016, The Economist’s front cover depicted central bankers “Out of Ammunition.” In October, the IMF’s World Economic Outlook was entitled “Subdued Demand: Symptoms and Remedies,” though there seemed to be more of the former than the latter. The overhang of private debt left behind by excessive credit creation before 2008 remained unresolved.

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