I want to look ahead, just for a couple of minutes, about future cyclical downturns and ask what mix of fiscal and monetary policy should then be appropriate. As you know the potential use of Keynesian fiscal stimulus has waxed and waned since World War II. The increase in real GDP during and after the war confirmed the potential usefulness of the Keynesian multiplier, and that lead enthusiastic Keynesian macroeconomists in the 1950s and 60s to imagine using fiscal policy and econometric models to fine tune the economy, virtually eliminating the business cycle. But the actual experience lead economists to abandon the hope of such fiscal fine-tuning. Primarily, I think, because of the long lags in the use of fiscal policy and the relatively short duration of business cycle downturns, historically about ten months.
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