Monetary policy cannot be the only active player in the field. In recent years, especially as the low interest rate environment and the effective lower bound have been constraining monetary policy, more and more attention has been put on fiscal policy and its capacity to help revitalise the economies that are suffering from subdued growth that is clearly below potential.
It is evident that the role of fiscal policy is stronger when the effective lower bound is binding. This calls for a better balanced policy mix in the Eurozone than is the case today. Policy mix does matter for both the short-term and longer-term. Even though cyclical fluctuations refer to temporary movements, their effects may persist for a long time.