Global | Overheating risk is real, but probably overstated
Could fiscal stimulus lead to economic overheating? Our assessment suggests that while that’s a risk, it’s not a foregone conclusion, even with large fiscal packages. There are also arguments for erring on the side of more stimulus rather than less, with policy options to rein in demand quickly if inflationary pressures start to pick up.
What you will learn:
- Multipliers are also likely to be low for other stimulus
categories too, including aid to businesses (well below 1
according to the Congressional Budget Office). - An important component of the argument for overheating is the existence of a large overhang of “excess” savings built up in 2020 due to coronavirus restrictions.
- A key determinant of whether a fiscal package risks overheating an economy is, in theory, the size of the output gap (the difference between actual output and its potential level).
Tags:
Related Services
Post
South Africa: Elections2024 | ‘ANC & friends’ election scenario
This Research Briefing sets out the first of four scenarios for South Africa's general election on May 29. In this scenario, the ANC wins over 46% of the vote share at the national level, and forms a government by working with small, constituency-based parties.
Find Out More
Post
BoJ likely to end zero interest rates in autumn
As expected, the BoJ maintained its policy rate at 0%-0.1% at Friday's meeting. With more confidence on the ongoing wage-driven inflation dynamics and a strong appetite for policy normalisation, the BoJ looks more likely to end its zero-interest rate policy in the autumn.
Find Out More