For a man who declared on his arrival at the IMF “I do not blog,” Olivier Blanchard, our soon-to-be former Chief Economist, is one hell of a blogger.
Prolific and popular. A demi-god: half economist, half artist. Blanchard writes the way he thinks: sharp, frank, and intellectual, while pushing against the edges of his métier with the creativity and honesty of a singular economist.
On April 15-16, the IMF organized the third conference on "Rethinking Macro Policy."
Here are my personal take aways.
1. What will be the "new normal"?
I had asked the panelists to concentrate not on current policy challenges, but on challenges in the "new normal." I had implicitly assumed that this new normal would be very much like the old normal, one of decent growth and positive equilibrium interest rates. The assumption was challenged at the conference.
On the one hand, Ken Rogoff argued that what we were in the adjustment phase of the “debt supercycle.” Such financial cycles, he argued, end up with debt overhang, which in turn slows down the recovery and requires low interest rates for some time to maintain sufficient demand. Under that view, while it may take a while for the overhang to go away, more so in the Euro zone than in the United States, we should eventually return to something like the old normal.
Seven years since the onset of the global financial crisis, we are still assessing how the crisis should change our views about macroeconomic policy. To take stock, the IMF organized two conferences, the first in 2011, the second in 2013, and published the proceedings in two books, titled "In the Wake of the Crisis" and "What Have We Learned?".
The time seems right for a third assessment. Research has continued, policies have been tried, and the debates have been intense. But have we truly made much progress? Are we closer to a new framework? To address these questions, Raghuram Rajan, Ken Rogoff, Larry Summers and I are organizing a third conference, "Rethinking Macro Policy III: Progress or Confusion?" that will take place on April 15-16 at the IMF.
The last five years have been a reminder of the importance of interconnections and risks in the global economy. They have triggered intense discussions on the optimal way to combine fiscal, monetary, and financial policies to deal with spillovers, and on the need and the scope for coordination of such policies.
The IMF’s 15th Jacques Polak Annual Research Conference, which took place in Washington DC on November 13 and 14, 2014, focused on Cross-Border Spillovers, and took stock of what we know and do not know. The summary below picks and chooses some papers, and does not do justice to the full set of papers presented and discussed at the conference. They can all be downloaded, and videos of each session are available, at www.imf.org/external/np/res/seminars/2014/arc.
(Version in Español)
Two weeks ago, the IMF organized a major research conference, in honor of Stanley Fischer, on lessons from the crisis. Here is my take. I shall focus on what I see as the lessons for monetary policy, but before I do this, let me mention two other important conclusions.
One, having your macro house in order pays off when there is an (external) crisis. In contrast to previous episodes, wise fiscal policy before this crisis gave emerging market countries the room to pursue countercyclical fiscal policies during the crisis, and this made a substantial difference.
Second, after a financial crisis, it is essential to rapidly clean up and recapitalize the banks. This did not happen in Japan in the 1990s, and was costly. But it did happen in the US in this crisis, and it helped the recovery.
Now let me now turn to monetary policy, and touch on three issues: the implications of the liquidity trap, the provision of liquidity, and the management of capital flows.
Several years out from the global financial crisis, the world economy is still confronting its painful legacies. Many countries are suffering from lackluster recoveries coupled with high and persistent unemployment. Policymakers are tackling the costs stemming from the crisis, managing the transition from crisis-era policies, and trying to adapt to the associated cross-border spillovers.
Against this background, the IMF’s 14th Jacques Polak Annual Research Conference, entitled “Crises: Yesterday and Today,” to take place on November 7-8, will take stock of our understanding of past and present crises.
This year’s conference will be a special one as we shall honor Stanley Fischer’s many contributions to economic research and policy. Stan has extensively studied economic and financial crises, first as a faculty member at the Massachusetts Institute of Technology, and then as a policymaker with many hats over the years―the Chief Economist of the World Bank, the First Deputy Managing Director of the IMF, and the Governor of the Bank of Israel.
Central Banks, Financial Regulators, and the Quest for Financial Stability: 2011 IMF Annual Research Conference
The global financial crisis gave economists pause for thought about what should be the future of macroeconomic policy. We have devoted much of our thinking to this issue these past three years, including how the many policy instruments work together. The interactions between monetary and macroprudential policies, in particular, remain hotly debated. This topic goes to the core of central banks’ mandates, and their role in achieving macroeconomic and financial stability. While the financial crisis triggered a fundamental rethinking of these issues, much research—both conceptual and empirical—remains to be done. I hope this year’s IMF Annual Research Conference will contribute to expanding the frontier of knowledge on this topic.