IMF conference to discuss state of economics

IMF is organising a timely conference (7-8 Mar 2011) to discuss the state of economics after the crisis. Most beautiful economist minds are assembling for the conference – Akerlof, Stiglitz, Paul Romer, David Romer etc.

Conference is divided into six sessions:

One can’t get better than this really. Covers almost everything under the sun. In each of these session links there are some excellent papers/speeches to read…

Chief econ- OLiver Blanchard writes:

Before the global economic crisis, mainstream macroeconomists had largely converged on a framework for the conduct of macroeconomic policy. The framework was elegant, and conceptually simple. Caricaturing just a bit, it went like this:

  • The essential goal of monetary policy was low and stable inflation. The best way to achieve it was to follow an interest rate rule. If designed right, the rule was not only credible, but delivered stable inflation and ensured that output was as close as it could be to its potential.
  • This was achieved by setting the key policy rate that then affected the term structure of interest rates and asset prices, and then to aggregate demand. One could safely ignore most of the details of financial intermediation. Financial regulation was outside the macroeconomic policy framework.
  • On currencies, countries could set an inflation target and float, or instead choose a hard currency peg or join common currency areas. In general, in a world in which central banks followed inflation targeting, there was no particular reason to worry about the level of the exchange rate or the current account balance. Certainly, attempting to control exchange rates through capital controls was undesirable. And multilateral coordination was not required.
  • Fiscal policy had a limited role at best, at least in the short run. With the right use of monetary policy, it was not really needed. Automatic stabilizers, such as unemployment benefits, would kick in during downturns, but discretionary policy was more likely to be misused than used well. The focus had to be on the medium run, and on fiscal sustainability.

The crisis has led to rethinking these principles. He discusses some ideas to take the discussion forward on each of the above sessions.

Looking forward to discussions in the conference.

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