Rethinking macroeconomic policy…

Oliver Blanchard sums up the views on macro policy at recently held IMF/WB meetings.

On 15 and 16 April 2015, the IMF hosted the third conference on “Rethinking Macroeconomic Policy”. I had initially chosen as the title and subtitle “Rethinking Macroeconomic Policy III. Down in the trenches”.1 I thought of the first conference in 2011 as having identified the main failings of previous policies, the second conference in 2013 as having identified general directions, and this conference as a progress report.

My subtitle was rejected by one of the co-organisers, namely Larry Summers. He argued that I was far too optimistic, that we were nowhere close to knowing where were going. Arguing with Larry is tough, so I chose an agnostic title, and shifted to “Rethinking Macro Policy III. Progress or confusion?”

Where do I think we are today? I think both Larry and I are right. I do not say this for diplomatic reasons. We are indeed proceeding in the trenches. But where the trenches are eventually going remains unclear. This is the theme I shall develop in my remarks, focusing on macroprudential tools, monetary policy, and fiscal policy.

On macropru research is still evolving but it has surely become an important thing. On mon pol we have learnt that  “the zero lower bound (ZLB) can be reached and is hard to get away from, that financial assets are truly imperfect substitutes, that QE can affect the term premium, and that bank runs happen to non-banks as well.” On fiscal we know it matters hugely. Fiscal multipliers exist and so on…

In the end, we still do not know where we are headed:

In short, while the trenches are being dug, we still do not have a good sense of their final destination. We clearly need to have another conference in two years.  

More importantly, we need to figure the history really well..



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: