1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Iceland: Challenging Times for Monetary and Fiscal Policies

Monetary and fiscal policies face huge challenges: the banking sector has collapsed; the economy is in the midst of a deep recession; the exchange rate has plunged; capital flows have been frozen; inflation is elevated; public debt has risen; source of revenues have disappeared; social needs have increased; and the unemployment insurance fund has been nearly depleted. Against this difficult background, this paper discusses what policy makers should do in order to restore balance in the Icelandic economy and lay out the foundations for a sustainable recovery. The key recommendations are to seek entry in the euro area and implement the fiscal consolidation measures necessary to comply with the IMF programme.

English

Keywords: exchange rate targeting, fiscal consolidation, efficiency of social spending, inflation targeting, fiscal policy framework, public investment, tax, student-to-teacher ratio, capital controls, euro area, inflation, European Union, optimal currency area, volatility, inflation expectation, public-sector wages, Iceland, policy credibility, producer support in agriculture
JEL: H51: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Health; E52: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Monetary Policy; H52: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Education; E62: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Fiscal Policy; E42: Macroeconomics and Monetary Economics / Money and Interest Rates / Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems; E21: Macroeconomics and Monetary Economics / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy / Macroeconomics: Consumption; Saving; Wealth; H60: Public Economics / National Budget, Deficit, and Debt / National Budget, Deficit, and Debt: General
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