More generally, the turmoil has also stressed the importance of increased coordination among all the relevant public authorities at the European and international level. Indeed, many governments have announced concerted action plans aiming to support financial systems that complement the initiatives in the field of liquidity management undertaken by central banks.
Building on this work, Ricardo and Alisdair McKay constructed a model to assess the role of automatic stabilisers in business cycles.9 Their Econometrica paper will be a benchmark in the literature on fiscal policy, and they now have a follow-up paper that adds the normative perspective.10 Their analysis – novel and more generally applicable – combines the New Keynesian DSGE framework with the incomplete-markets, heterogeneous-agent model of consumption and inequality.