Monday 20 June 2016

The risk of continuing stimulus

IMF urges Japan to redouble economic stimulus as it seems Japan cannot reach its inflation target of 2 percent. I think that there is an enormous risk of such continuous stimulus. Firstly, an economy will become more and more dependent on the stimulus policy if the stimulus policy continues for a long period. Secondly, the effectiveness of the stimulus policy will weaken over time. People will fully understand the effectiveness of the stimulus policy and may even underestimate the future effectiveness of the stimulus policy when the policy continues for a long period of time. Thirdly, when people benefit from the stimulus policy, the government will face greater opposition to withdraw the stimulus policy, especially when the economy is used to the stimulus policy. Fourthly, it can widen the wealth gap involuntarily, as the economic stimulus benefit the businesses first. Therefore, I believe that government should always set a time length for its stimulus and must execute the deadline.

No comments:

Post a Comment