Of course, it is unclear how the future path for fiscal policy will evolve – a topic I will return to later – and the uncertainty surrounding both the federal budget process and the future course of fiscal policy appears to have weighed on household and business confidence of late.
Prior to the crisis, the deficiencies of macroeconomic policies and the lack of sufficient international cooperation led to the build-up of unsustainable external imbalances among key deficit and surplus economies. Such global imbalances paved the way and contributed to the financial crisis to unfold.