Macroeconomic policy

James D. Hamilton, Ethan Harris, Jan Hatzius, Kenneth D. West, 15 November 2015

No-one is sure what the Fed’s long-delayed nominal interest rate hikes will bring, and there has been much speculation on what the equilibrium rate might look like when the Fed acts. This column argues that it would be foolish to attempt to pin down a precise value for the steady-state real rate. A better approach is to predict the plausible range of values, and evidence suggests that the equilibrium rate will range from a little above zero up to 2%.

Athanasios Orphanides, 11 November 2015

There is generally consensus among macroeconomists that monetary policy works best when it is systematic. Following the financial crisis, the US Federal Reserve shifted from long-term, systematic policy to short-term goals targeting unemployment. This column argues that, while these were appropriate in the aftermath of the downturn, such policy accommodations have been pursued for too long since. The need for a somewhat accommodative policy cannot be used to defend the current non-systematic policy and excessive emphasis on short-term employment gains.

Ricardo Caballero, Emmanuel Farhi, Pierre-Olivier Gourinchas, 05 November 2015

Interest rates are near zero – or moving towards it – in major economies worldwide. This column introduces a new theoretical framework that helps to organise thinking on how liquidity traps and slow growth spread across the world. It stresses the role of capital flows, exchange rates, and the shortage of safe assets. Once rates are at the ZLB, the imbalance between the supply and demand of safe assets is redressed by lower global output. Liquidity traps emerge naturally and countries drag each other into them.

Michael Spence, Danny Leipziger, James Manyika, Ravi Kanbur, 04 November 2015

The global economy is not working properly. This column argues that to overcome suboptimal results, global aggregate demand must be expanded, the gap between excessively large pools of capital and huge unmet infrastructure needs must be bridged, and finally, the distributional downside of rapid technological advances and global integration must be addressed. Change will come only when a global vision is put forth, coupled with political will.

Ata Can Bertay, Di Gong, Wolf Wagner, 02 November 2015

Since the Global Crisis, a broad discussion about the future of securitisation has emerged. This column presents new evidence on the relationship between securitisation and economic growth. The impact of securitisation depends on the underlying type of collateral. Securitisation of business loans may encourage investment and spur economic activity, but securitisation of consumer loans may at the aggregate divert resources away from productive purposes.

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