Managing economic crisis Essay

Document Type:Thesis

Subject Area:Economics

Document 1

Consequently, the economic crisis of 2008 led to the emergence of substantial policy challenges which needs to be looked into deeply to come up with a solution. Not only are these challenges faced by the policymakers, but also the economics professionals as a whole. If in case these economic crisis is experienced again, it would be easy to manage it because of the monetary and/or fiscal policy use, macro-prudential policies, present economic state, and historical experience provided important lessons in the economics profession. This paper aims at evaluating how these issues are relevant to the economic crisis prevention and management. Use of Monetary and/or Fiscal Policy Understanding monetary and fiscal policy requires us to put in mind that it is all about an economic area in which member countries have decided to take up a single area-wide monetary policy, rather than their own national currencies (González-Páramo, 2010). This became possible in Europe because of the sufficient consensus that emerged in the sound macroeconomic policy basic principles. EU treaty prohibits direct government bailouts and monetary financing so as to protect the monetary policy from fiscal policies that tend to be extravagant. Economic and Monetary Union premises is defined as a clear allocation of responsibilities among the makers of the policies; a fiscal and monetary authorities’ commitments to ensure order in their houses, along with ensuring that all parties strictly abide by the rules. On balancing the use of monetary and fiscal policy, major economies will experience stabilization. Euro-system has adopted non-standard monetary policy measures, keeping in mind its phasing-out design (González-Páramo, 2010).

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Money markets are now performing better than in 2008 (Taylor, 2009) and the past reductions done in the key policy rates of the ECB are increasingly being witnessed on the bank loans interest rates provided to corporations and households. This is an indication of the functioning in the process of monetary policy transmission. Considerations of monetary exit by ECB acts as the sole objective of price stability that needs to be maintained over a medium term. Talking about the fiscal policy, fiscal adjustments that have been made so far has been very essential in dealing with economic crisis. During the crisis of 2008, it was right for governments to allow deficits expansion so that it would be easy for fiscal policy to provide support to the economy (Taylor, 2009). The 2008 economic crisis revealed that there was a need to adopt the macro-prudential approach to assessing financial systems.

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Currently, regulators have used a measure that refers to macro-prudential policy on levels of discretion. Introduction of this policy determines and harmonizes response of policies to specific situations (Vučinić, 2016). In order to correct externalities and market failures, as well as compensate causes of macro-prudential policy, it is necessary to adopt the policy. Similarly, for it to function effectively and smoothly, it needs a strong institutional framework. Central banks have since been pushed to stabilize the economy. As a reaction to this, they have cut interest rates and implemented macro-prudential policies and non- standard measures of monetary policies. Historical Experience The process of European economic history has resulted to the largest and the most easily accessed business market in the world. The euro, as well as the baking union, are what have facilitated these markets.

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Just as from early 1958 during the period of Rome treaties to the current state of Europe's economy. From the fundamental misunderstandings which led to the economic crisis in 2008. Crisis control has currently acquired economic crisis management techniques to carter for any crisis that is likely to happen again in future. The Eurozone governance has also acquired a pursuit of four great complimentary goals and objectives, these include, efficient economic union, fiscal union financial union and the political union (Aydalot & Keeble 2018). This is the best technique at the moment that has facilitated the development of the economy in Europe. Present Economic State The current Europe economy has been marked to be doing much better than the expected this year. The growth of Europe's economy is likely to remain solid. In 2017, the GDP was estimated to be 1.

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The growth forecast for this year and 2019 have been raised from 1. up to 2. for next year. This is because of the adoption of several economic policies essential for preventing the crisis. References Aydalot, P. Keeble, D. The high technology industry and innovative environments: the European experience. Routledge. Monetary and fiscal policy interactions during the financial crisis. In Speech at Banco de Espana Conference “Interactions between Monetary and Fiscal Policies,” Madrid. ecb. europa. eu/press/key/date/2010/html/sp100226. w14631). National Bureau of Economic Research. ecb. europa. eu/press/key/date/2009/html/sp090608. Accessed 05 June 2018.

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