Leading economists discuss post–financial crisis policy dilemmas, including the dangers of complacency in a period of relative stability.
The Great Depression led to the Keynesian revolution and dramatic shifts in macroeconomic theory and macroeconomic policy. Similarly, the stagflation of the 1970s led to the adoption of the natural rate hypothesis and to a major reassessment of the role of macroeconomic policy. Should the financial crisis and the Great Recession lead to yet another major reassessment, to another intellectual revolution? Will it? If so, what form should it, or will it, take? These are the questions taken up in this book, in a series of contributions by policymakers and academics.
The contributors discuss the complex role of the financial sector, the relative roles of monetary and fiscal policy, the limits of monetary policy to address financial stability, the need for fiscal policy to play a more active role in stabilization, and the relative roles of financial regulation and macroprudential tools. The general message is a warning against going back to precrisis waysto narrow inflation targeting, little use of fiscal policy for stabilization, and insufficient financial regulation.
Contributors David Aikman, Alan J. Auerbach, Ben S. Bernanke, Olivier Blanchard, Lael Brainard, Markus K. Brunnermeier, Marco Buti, Benoît Cœuré, Mario Draghi, Barry Eichengreen, Jason Furman, Gita Gopinath, Pierre-Olivier Gourinchas, Andrew G. Haldane, Philipp Hildebrand, Marc Hinterschweiger, Sujit Kapadia, Nellie Liang, Adam S. Posen, Raghuram Rajan, Valerie Ramey, Carmen Reinhart, Dani Rodrik, Robert E. Rubin, Jay C. Shambaugh, Tharman Shanmugaratnam, Jeremy C. Stein, Lawrence H. Summers
About the Author
Olivier Blanchard is C. Fred Bergsten Senior Fellow at the Peterson Institute for International Economics in Washington, DC. He was Chief Economist at the International Monetary Fund from 2008 to 2015.
Lawrence H. Summers is Charles W. Eliot Professor and President Emeritus at Harvard University. He served as Secretary of the Treasury in the Clinton administration and as Director of the National Economic Council in the Obama administration.
Table of Contents
Introduction: Rethinking Stabilization Policy: Evolution or Revolution? Olivier Blanchard Lawrence H. Summers xi
Part I Monetary Policy 1
1 Monetary Policy in a New Era Ben S. Bernanke 3
2 Rethinking Monetary Policy in a New Normal Lael Brainard 49
3 Postcrisis Monetary Policy from the Perspective of Small Open Economies Philipp Hildebrand 61
4 Monetary Policy in the Wake of the Crisis Adam S. Posen 65
5 Historical Lessons from the Euro Area Crisis for Monetary Policy Mario Draghi 71
Part II Fiscal Policy 79
6 Fiscal Policy Alan J. Auerbach 81
7 Adverse Effects of Unsound Fiscal Policies: The U.S. Example Robert E. Rubin 105
8 Fiscal Policy in the European Economic and Monetary Union: An Evolving View Marco Buti 109
9 Fiscal Policy: Tax and Spending Multipliers in the United States Valerie Ramey 121
10 Rethinking Fiscal Policy Jay C. Shambaugh 131
Part III Financial Policy 141
11 Rethinking Financial Stability David Aikman Andrew G. Haldane Marc Hinterschweiger Sujit Kapadia 143
12 The Role of Monetary Policy in Guaranteeing Financial Stability Markus K. Brunnermeier 195
13 The Known Unknowns of Financial Regulation Benoit Coeuré 203
14 Financial Stability and Macroprudential Policies Nellie Liang 213
15 Some Thoughts on the Merits of Multipolar Regulation Jeremy C. Stein 221
Part IV Inequality and Political Economy 227
16 Should Policymakers Care Whether Inequality Is Helpful or Harmful for Growth? Jason Furman 229
17 Policy, Inequality, and Growth Dani Rodrik 253
18 Absolute Mobility Matters, Too: Regenerating People and Cities Tharman Shanmugaratnam 259
Part V International Economy Issues 269
19 Rethinking International Macroeconomic Policy Gita Gopinath 271
20 The Difficulty of Separation Raghuram Rajan 299
21 Some Factors Shaping the International Financial Landscape of the Future Pierre-Olivier Gourinchas 305
22 Dollar Pricing in International Trade and Finance Barry Eichengreen 315
23 The Triffin Dilemma, Chinese Opacity, and Capital Mobility: Concluding Remarks on International Macroeconomic Policy Carmen Reinhart 319