New Papers On Fiscal Policy And Macroeconomic Stabilisation

The Treasury has published today three papers covering fiscal policy and macroeconomic stabilisation.

• Jenna Bernstein, Ben Gaukrodger and Oscar Parkyn, Enhancing the role of fiscal policy in New Zealand’s macroeconomic stabilisation (WP 24/04). There is a need to reassess the role of fiscal policy in the wake of COVID-19 and structural trends. As has been the experience over recent economic cycles, fiscal policy may have to play a significant role in macroeconomic stabilisation in the future, especially if monetary policy becomes constrained by the effective lower bound on interest rates. This paper examines the high-level options for improving the effectiveness of counter-cyclical fiscal policy, including strengthening the automatic stabilisers, counter-cyclical discretionary policies and developing ‘semi-automatic’ stabilisers. It is important to consider fiscal institutions and administrative capacity to implement stabilisation policy effectively and maintain debt sustainability.
• Claudia Sahm, Semi-automatic fiscal stabilisers for New Zealand. The paper considers the potential of semi-automatic stabilisers - policies enacted before a recession and implemented based on a pre-set economic rule - in a New Zealand context. The aim is to improve the effectiveness and predictability of fiscal policy in recessions, minimising the need for discretionary fiscal policies and allowing for better design. The paper discusses the rationale for semi-automatic stabilisers and the underlying design principles; sets out a potential rule calibrated to the New Zealand economy; and considers direct payments to individuals as a specific example of a semi-automatic stabiliser for New Zealand.
• Bruce White, Fiscal - monetary coordination: A retrospective (AN 24/07). This paper takes a high-level look back at the course of fiscal and monetary policy, alongside that of the macroeconomy, over the past three decades. It does so with an eye to seeing how those have evolved in relation to each other, in the context of helping to inform assessments of whether and, if so how, there may be scope for fiscal and monetary policy to be coordinated in ways that help to achieve best possible macroeconomic stabilisation outcomes.

Disclaimer: The views, opinions, findings, and conclusions or recommendations expressed in these papers are strictly those of the authors. They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government. The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in papers and articles.

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