The current global recovery has followed an unusual
path compared with the three previous global recoveries.
Specifically, the recovery following the Great
Recession exhibits two types of divergences. The first
is the sharp divergence of activity across advanced and
emerging market economies, which we first noted in
the April 2012 World Economic Outlook and that has
continued since then. The second is the great divergence
of monetary and fiscal policies, which has become
increasingly pronounced during the past two years.
Of particular note is this statement:
…Even though monetary policy has been
effective, policymakers had to resort to unconventional
measures. Even with these measures, the zero bound
on interest rates and the extent of financial disruption
during the crisis have lowered the traction of monetary
policy. This, together with the extent of slack in these
economies, may have amplified the impact of contractionary
fiscal policies. Four years into a weak recovery,
policymakers may therefore need to worry about the
risk of overburdening monetary policy because it is
being relied on to deliver more than it traditionally
The differential behavior of government spending is illustrated in Figure 1.1.2. It is interesting to note the fact that government spending is most depressed relative to previous episodes in those cases where the recovery has been most lackluster.