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Thursday, September 29, 2016

Simon Wren-Lewis : A General Theory of Austerity (pdf)


Austerity is defined as a fiscal contraction that causes a significant increase in aggregate unemployment. For the
global economy, or an economy with a flexible exchange rate, or a monetary union as a whole, an increase in
unemployment following a fiscal consolidation can and should be avoided because monetary policy can normally
offset the demand impact of the consolidation. The tragedy of global austerity after 2010 was that fiscal
consolidation was not delayed until monetary policy was able to do this. 

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