Fiscal and Monetary Policy Challenges in the United States and the Euro Area

November 29, 2012

House of Finance
Campus Westend
Goethe University Frankfurt

In November 2012, the IMFS and the House of Finance jointly organized a lunchtime conference on “Fiscal and Monetary Policy Challenges in the United States and the Euro Area”. Richard W. Fisher, President and Chief Executive Officer of the Federal Reserve Bank of Dallas, started off the conference with a speech on the current monetary and fiscal challenges in the United States, which was both entertaining and interesting.

Fisher called on the U.S. government to provide the necessary conditions for job creation. He argued that monetary policy had already done its homework. “We filled up the tank, now we’re just waiting for the signal to go.” He explained that now it was fiscal policy’s turn. Fisher particularly emphasized the need to avoid the “fiscal cliff” – the simultaneous increase in tax rates and decrease of government spending through sequestration – at the end of the year. He claimed that if businesses do not trust long-term fiscal policy, they would not create jobs. He argued that monetary policymakers must realize that they are reaching their limits in terms of the job market.

Following the speech by Fisher, Volker Wieland presented current research based on a model developed by the European Central Bank. According to this model, states facing consolidation pressure should give preference to spending cuts over increasing taxes, especially income taxes, as tax increases have negative short and long-term effects on the economy.

The conference was concluded with a Q&A session with the audience and journalists.