Space for macroeconomic policy tightens around globe

The global financial crisis which enters its sixth year constantly squeezes the macroeconomic policy space in various countries.

Facing the global decline in economic growth and many uncertainties, developed countries can only continue to implement tight fiscal policies and ultra-loose monetary policies in 2013.

In order to alleviate the vicious circle between fiscal austerity and economic recession, the European Union agreed to relax some of the countries' deficit adjustment goals, but the austerity trend cannot fundamentally change.

In the United States, even if a fiscal cliff is temporarily avoided, the tax rate will continue to gradually rise over the next few years and the federal government expenditure in 2013 will still decline markedly.

As for Japan, the world's highest ratio of government debt against GDP and a huge budget deficit leave it no choice but to continue broadening the tax base and increasing tax rates.

Quantitative easing will still be the dominant monetary policy in developed countries.

The European Central Bank, the United States Federal Reserve Board, and the Bank of Japan will continue to implement the quantitative easing policy and constantly expand the size of purchase of long-term securities from the capital market in order to increase the liquidity of the banking system, lower the interest rates of government bonds, thereby reducing the cost of credit for the government, residents, and businesses while stimulating demands.

Open-ended practices are adopted by Europe and the United States in the new round of quantitative easing without setting up volume or terms for the purchase of long-term securities, which not only shows the central banks' determination to stabilize the financial markets but also provides flexibility for timely adjustment of monetary policies in the future.

Not long ago, the Federal Reserve Board announced to take the unemployment rate of 6.5 percent together with the inflation rate of 2.5 percent for the quantitative target of monetary policies. The announcement triggered a fierce debate in the financial sector. Those opposed to the move said the adoption of the unemployment rate as the quantitative target is because the Fed has no other alternative.

Read the Chinese version: 全球宏观经济政策空间吃紧（国际论坛）;
Source: People's Daily

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