Monetary policy The automatic fiscal stabilizers help in stabilizing the economy over the business cycle, but the main burden of fighting recessions is left to the central bank. Traditionally there have been two reasons for this: •  Monetary policy responds to shocks much more quickly than fiscal policy.
•  It is generally believed that, if an economy is open to foreign trade and capital flows and has flexible exchange rates, monetary policy becomes more effective in fighting cycles whereas fiscal policy becomes less effective.