Even so, it's clear the monetary stimulus has been much smaller than the fiscal (budgetary) stimulus. Over the seven months to April this year the Reserve cut the official cash rate by 4.25 percentage points. Roughly 3 percentage points of this was passed on to the banks' home loan and business customers. The Reserve's research suggests that every sustained 1 percentage point cut in rates leads to a rise in real gross domestic product of about 0.33 percentage points in the first year, another 0.33 points in the second year and another 0.165 points in the third. So we're talking about a stimulus in the first year capable of producing a rise of about 1 percentage point in real GDP - which has since been trimmed by the 0.5 percentage-point rise in the official rate - compared with effects from the fiscal stimulus estimated by Treasury to be worth 1 percentage point of GDP last financial year plus 1.5 percentage points this financial year. In incorporating the effect of the fiscal stimulus into its forecasts at budget-time, Treasury used highly conservative (pessimistic) ''multipliers'' of 0.6 for the Government's cash payments and 0.85 for capital works spending. (That is, a cash payment of $1 was assumed to add 60c to GDP, after allowing for the proportion saved and the proportion going on imports.) Although Treasury has stuck with these multipliers in its revised forecasts, it's clear they significantly underestimate the effect of the fiscal stimulus.

The truth is that, for many years, fiscal stimulus has been highly unfashionable in academic circles, and actively disparaged in some. Little wonder its local promoters were so modest in their expectations. But why has it been so effective? Partly, I suspect, because it was applied so early in the downturn, giving it a chance to start working before things had unravelled. Partly because it was applied so wholeheartedly - that is, there was so much of it. However, a big part of the credit must surely go to the effect of the stimulus (including the monetary stimulus) on business and consumer confidence. It's when stimulus not only adds directly to spending but also cheers people up - so they become more willing to spend their own money - that it can be mightily effective. The big recovery in consumer confidence came after we received news that real GDP grew in the March quarter, thus avoiding the ''two successive quarters of negative growth'' silliness and prompting the media to trumpet the wrong (but nonetheless helpful) message that we'd avoided recession. So the reality of the spending boost in the March quarter had a favourable effect on the psychology of businesses and consumers in subsequent quarters, thus perpetuating a virtuous circle of spending. Sceptics worry that a Keynesian kick-start won't achieve ignition; that once the government money's been spent, the economy will sag back to where it was. In traditional Keynesian thinking, this is avoided by very high multipliers. In the modern world, ignition seems to be achieved by the boost to confidence - if it's done right.

Though it was reluctant to admit it, the shape and timing of the Rudd Government's various packages were influenced by its desire to avoid two successive quarters of contraction. It was reluctant to admit this for fear it would be accused of playing political games. In truth, it was a smart tactic that recognised the key role to be played by the management of confidence and expectations. And it worked. In the early stages the Government also sought to improve expectations by expressing its willingness to pile on as much stimulus as proved necessary. That seems to have worked, too. So it's not just the diehard Keynesians whose standing is enhanced by this episode. It's also those economists who emphasise the central role of confidence in driving the business cycle: the leading behavioural economist Robert Shiller of Yale and the Nobel laureate George Akerlof, of the University of California, Berkeley, who has nominated Keynes as the first behavioural economist. But, some may object, a lot of our economy's strength has not come from Keynesian stimulus, but from our strong exports to China.

Gotcha. Why is China importing our resources so enthusiastically despite its fall-off in exports? Because of the massive fiscal stimulus to its economy. The fact is that most relevant economies (and the ultra-orthodox International Monetary Fund) turned to fiscal stimulus in the wake of the global financial crisis, often because, with official interest rates close to zero, it was the only form of stimulus left. Its success is evident in China, Japan and South Korea as well as here, while most countries' ''cash for clunkers'' programs have boosted new car sales. Keynesian policies are back in favour with policy-makers, and their academic detractors have lost credibility. Ross Gittins is the Herald's Economics Editor.