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COORDINATION OF FISCAL WITH MONETARY AND FINANCIAL STABILITY POLICIES CAN BETTER CURE UNEMPLOYMENT

Abstract

This paper examines recent theoretical and empirical developments on fiscal policy to conclude that it is an effective macroeconomic tool in terms of curing unemployment. It is further shown that financial stability, ignored prior to the ‘great recession’, is important in economic policy. Fiscal policy can contribute to curing unemployment, especially so when coordinated closely not only with monetary policy but also with financial stability policies. We also suggest that such coordination should be geared towards reducing income inequality. It is then high time that economists and economic-policy makers turned their attention more closely and seriously to restoring faith in fiscal policy with its strong macroeconomic role as a means of curing unemployment. Fiscal policy, properly coordinated with monetary and financial stability policies, should thereby be restored to its proper upgraded role in terms of economic policy.

Keywords: fiscal policy, unemployment, coordination of fiscal, monetary and financial stability policies, income inequality