Francesco Giavazzi, Guido Tabellini25 September 2014
In a recent column, the authors suggested coordinating monetary and fiscal expansions in the Eurozone through a money-financed temporary tax cut. The effectiveness of their proposal, however, has been questioned. In this column, the authors address some of the criticisms. They argue that the counter-cyclical fiscal policies adopted by the US and the UK, together with monetary easing, had a stabilising effect on output. Moral hazard due to the more lax monetary and fiscal policies is avoidable, increasing the credibility of the future spending cuts.
In his recent article on Vox, Roberto Perotti takes issue with the proposal of coordinating a monetary and fiscal expansion in the Eurozone through a money-financed temporary tax cut, which we advocated in a column on 21 August (see Perotti 2014, Giavazzi and Tabellini 2014). He does not question the effectiveness of the proposal in stimulating aggregate demand.
Olivier Blanchard, Giovanni Dell'Ariccia, Paolo Mauro31 May 2013
The Global Crisis has shaken the consensus on how to run macroeconomic policy. Three years ago, the authors discussed this issue on VoxEU.org. This column takes a more granular look at new efforts to rethink macroeconomic policy. It takes stock of early results and provides a more detailed agenda for the key issues that should keep policymakers and academic macroeconomists busy in the next few years.
The global economic crisis has kept forcing policymakers and academics to rethink macroeconomic policy. First was the Lehman crisis, which showed how much they had underestimated the dangers posed by the financial system, and the limits of monetary policy. Then it was the euro crisis, which forced them to rethink the workings of currency unions, and fiscal policy. And, throughout, they have had to improvise, from the use of unconventional monetary policies, to the initial fiscal stimulus, to the speed of fiscal consolidation, to the use of macroprudential instruments.
Solving the macroeconomic policy challenge in Europe
Richard Wood19 December 2012
Five years after the subprime bubble burst, the self-correcting nature of business cycles is being questioned and, subsequently, orthodox macroeconomic policy is starting to be challenged. This column introduces a radical rethink of options open to macroeconomic policymakers, suggesting that in order to simultaneously achieve economic stimulus without increasing debt, new money creation should be used to directly finance on-going budget deficits.
Countries in Europe are either slipping into recession or experiencing worsening depression. Economies are headed in the wrong direction, and the malaise is spreading. The current orthodoxies are failing.
Did the Indian capital controls work as a tool of macroeconomic policy?
Ila Patnaik, Ajay Shah20 November 2012
Can we agree that capital controls are an effective tool for macroeconomic policy? If so, should they be permanent or temporary? This column argues that under a permanent system of capital controls, a country will always bear costs whether there is a surge or capital flight or not. Looking at the Indian experience, it’s clear that capital controls do not necessarily help a government meet its macroeconomic goals in times of need.
The empirical literature on the effectiveness of capital controls for macroeconomic management has generally found that transitory capital controls have a relatively limited impact on the magnitude of flows (Magud et. al. 2011). Controls appear to influence the composition of capital flows, but they seem to do so only for a short time. Often, economic agents can find ways to circumvent controls, particularly those on specific types of flows.
Jackson Hole, the crisis and policy responses: A new orthodoxy
Richard Wood31 August 2012
The crisis is deepening in Europe, and recession is spreading globally. This column argues that macroeconomic policies have failed to overcome the dual problems of flagging aggregate demand and high and spiralling public debt. It urges policymakers to abandon failed orthodoxies and irrelevant treaties and consider new, alternative solutions.
Demand, output, manufacturing activity and exports are weakening in many parts of the industrialised world. Quantitative easing policies have generally run their course, as interest rates are at the zero bound or thereabouts. In the Eurozone it is questionable whether the ‘one-size-fits-all’ policy interest rate approach is helpful or meaningful, or whether it can be sustained. In those countries suffering the worst collapse in GDP, authorities are applying draconian ‘fiscal austerity’ policies.
The future of macroeconomic policy: Nine tentative conclusions
Olivier Blanchard23 March 2011
The global economic crisis has taught us to question our most cherished beliefs about the way we conduct macroeconomic policy. In this column, IMF chief economist Olivier Blanchard lays out his thoughts, arguing that we are far from a new Washington Consensus. Exploration is the order of the day.
The global economic crisis forces us to question our most cherished beliefs about the way we conduct macroeconomic policy. With this in mind, I have just organised, together with David Romer, Joe Stiglitz, and Michael Spence, a conference at the IMF on "Rethinking macroeconomic policy”.
International macro-finance is a new area of open economy macroeconomics that brings portfolio choice and asset pricing considerations into models of international macroeconomics. This column argues that the recent global crisis illustrates just how important these considerations are. It surveys recent developments in international macro-finance and suggests several promising directions for future research.
Financial markets and their role in international risk sharing have inspired a vast body of theoretical literature. Over the past 40 years, international finance and economics has evolved into a vibrant field spreading from the basic international version of the capital asset pricing model to some of the most sophisticated dynamic stochastic general equilibrium models.
Automatic stabilisers and the economic crisis in Europe and the US
Mathias Dolls, Clemens Fuest, Andreas Peichl17 September 2010
While debate rages over the appropriate size and timing of fiscal expansions, this column points out that much less attention is devoted to role of the automatic stabilisers in the tax and transfer system. It compares these stabilisers in Europe and the US, finding that social transfers play a key role in the stabilisation of disposable incomes and consumer demand.
The big difference between the "great recession" and the "Great Depression" was government policy – especially stabilisation policy (Eichengreen and O'Rourke 2010). This time governments realised that they had to provide Keynesian stimulus while ensuring that the financial system did not collapse.
What can we learn from US President Obama’s fiscal stimulus? This column argues that channelling the stimulus package through state governments exposed it to agency costs, free-riding problem, and political expediency. As a result, the stimulus has failed to meet its objectives at the state level. The lesson is that fiscal stimulus should be conducted centrally.
The recession of 2007 is perhaps the deepest, longest, and most damaging economic event of the last 75 years. In response, all tools of macroeconomic policy management were called into use: from direct easing of interest rates and purchasing of public and private debt to tax cuts and government spending. There is every reason to think that this across-the-line defence was necessary to prevent a major recession from turning into what might have been a worldwide depression.
EU Economic Integration: Lessons of the past, and what does the future hold?
17 - 19 March 2009, Dallas, Texas, USA
The Economics Interest Section of the European Union Studies Association (EUSA) and the Globalization & Monetary Policy Institute of the Federal Reserve Bank of Dallas are pleased to announce an economics workshop on European Integration. The meeting will be held at the Federal Reserve Bank of Dallas on 18-19th March, 2010 linked to a one-day public conference that the Institute is organising on 17 March on 10 years of the euro.
Papers on any aspect of European economic integration are welcome, as well as papers that place European integration in the context of the ongoing globalization of trade and capital flows. Abstracts are to be sent to both Patrick Crowley at email@example.com and David Mayes at firstname.lastname@example.org by January 10th, 2010. Please indicate whether you would also be willing to serve as a chair and/or discussant.
European Union Studies Association; Federal Reserve Bank of Dallas
Dallas, Texas, USA
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