What is a 'Keynesian Put'?

A Keynesian Put is the expectation that markets and the economy will be supported by fiscal policy stimulus measures. Fiscal policy stimulus, including reductions in taxes and increased government spending, are typically designed to boost the real economy, although financial markets also benefit from strengthening economic growth.

BREAKING DOWN 'Keynesian Put'

The term Keynesian Put was coined by analysts at Bank of America Merrill Lynch in 2016. It is both a reference to the economic theory of 20th century British economist John Maynard Keynes who was a proponent of government spending when demand was slack, and a play on the term Greenspan Put, which was first used in 1998 to describe the extremely accommodative monetary policies of the then Federal Reserve Chairman, Alan Greenspan to avoid recession.

Keynesian Put represents a promise that the government and fiscal authorities will spend to maintain growth and inflation in the global economy. While accommodative monetary policy in the form of lower interest rates is meant to act as a stimulus to the real economy, since the 2007 to 2008 global financial crisis, global central banks have adopted extreme accommodative policies that have helped push up the price of risk assets but with limited results for the real economy.

In this context, renewed support for Keynesian-style fiscal stimulus measures has led to expectations that governments around the world will use their spending power to boost the economy and, in turn, help support asset prices.

Evidence of Keynesian Put

As of 2016, there had been no specific measures to stimulate demand by any nation although the U.S. investment bank was recommending that investors be prepared and consider rebalancing portfolios to favor companies that might benefit from economic stimulation. These include retail, for example, defense, infrastructure and real assets.

In addition to the suggestion of increased fiscal spending by U.S. presidents, the Bank of England has followed suit since Brexit, Germany is its austerity measured in the European Union and Japan is also considering stimulus.

The Effect of Keynesian Put

Although the effect of Keynesian Put is largely speculation, in the short term, infrastructure spending to improve roads, bridges, airports, hospitals, high-speed internet and to boost defense can improve an economy because initiatives raise corporate profits, create jobs and increase the GDP. However, increased government spending will raise the deficit even higher increasing taxes and inflation. The main drawback to Keynesian Put is that increased spending and the resulting rise in inflation is detrimental to bondholders.

  1. Keynesian Economics

    Keynesian Economics is an economic theory of total spending in ...
  2. Economic Stimulus

    Economic stimulus refers to attempts by governments or government ...
  3. Deficit Spending

    Deficit spending occurs whenever a government's expenditures ...
  4. Fiscal Policy

    The use of government spending and tax policies to influence ...
  5. Government Purchases

    Government purchases are expenditures and gross investment by ...
  6. Accommodative Monetary Policy

    Accommodative monetary policy occurs when a central bank attempts ...
Related Articles
  1. Investing

    Central Bankers' Role in Keynesian Economics

    Learn about the role of monetary policy in Keynesian economics, and examine how central banks impacted aggregate demand in the aftermath of the 2008 crisis.
  2. Insights

    A Look at Fiscal and Monetary Policy

    Learn more about which policy is better for the economy, monetary policy or fiscal policy. Find out which side of the fence you're on.
  3. Trading

    John Maynard Keynes - Giant Of Finance

    Keynes' "General Theory" will forever be remembered for giving governments a central role in economics.
  4. Insights

    What is Fiscal Policy?

    Fiscal Policy how governments adjust taxes and spending to moderate the economy. Fiscal Policy is the sister strategy to monetary policy, through which a central bank influences a nation's money ...
  5. Investing

    Collision Course: Fed vs. Trump

    President-Elect Trump's stimulus plan may hit a brick wall as Yellen's Fed raises rates
  6. Investing

    Japan's Expansionist Policies Have Brought Unexpected Results

    Twenty-five years of expansionary policy, both fiscal and monetary, has not yielded the desired results for the Japanese economy.
  7. Insights

    Stagflation, 1970s Style

    Find out how Milton Friedman's monetarist theory helped bring the U.S. out of the economic doldrums.
  8. Insights

    What Causes Bubbles?

    A look at how asset bubbles are formed according to different schools of thought.
  1. What is the role of deficit spending in fiscal policy?

    Read about the role deficit spending can play in a government's fiscal policy, and learn why economists are torn about the ... Read Answer >>
  2. What are some examples of expansionary monetary policy?

    Learn about expansionary monetary policy and how central banks use discount rates, reserve ratios and purchases of securities ... Read Answer >>
  3. What impact does economics have on government policy?

    Learn about the impact of economic conditions on government policy and understand how governments engineer economic conditions ... Read Answer >>
  4. How do changes in interest rates affect the spending habits in the economy?

    Examine the factors that typically determine how consumers react to interest rate changes in terms of increasing their levels ... Read Answer >>
  5. What role does the government play in capitalism?

    Take a deeper look at the role of government in a capitalist economic system and about competing ideas about the proper amount ... Read Answer >>
  6. How can the Fed increase aggregate demand?

    Learn about the Federal Reserve's role in increasing aggregate demand, and find out why fiscal policy tends to be more effective ... Read Answer >>
Trading Center