Bernanke and German stimulus

April 4, 2009

Simon Johnson makes an excellent point:

Remember this.  If you run an expansionary fiscal policy (building bridges), I have an incentive to free ride (selling you BMWs) and not engage in a similar fiscal stimulus.  But if you run an expansionary monetary policy, your exchange rate will tend to depreciate, putting pressure on my exporters and I’ll be pushed – by BMW-type producers – towards providing a parallel monetary stimulus.

Europe will come around.  But 1 trillion to Eastern Europe and Latin America from the IMF will help a lot for now.

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