Scenario based on US economic policy plans

Abstract

The economic policy measures planned by the new US administration are geared towards fuelling growth. The form, magnitude and timing of the measures, nevertheless, are still undecided. Their potential effects are, therefore, not captured by the Bank of Finland’s baseline forecast for the global economy. The following alternative scenario explores the effects of one potential policy package on total output, the rate of inflation, interest rates and the external value of the US dollar. The broad infrastructure investments scheduled for the following decade, together with concurrent tax cuts for households and businesses, are key elements of the scenario. The assumption of the scenario is that the increase in public spending will be funded by levying taxes on imports and taking on additional debt.