Rethinking Macro Policy Ii: Getting Granular

Topics: Monetary policy, Inflation, Central bank Pages: 29 (10968 words) Published: August 8, 2013
   I M F S T A F F D I S C U S S I O N N O T E

April 2013

Rethinking Macro Policy II: Getting Granular
Olivier Blanchard, Giovanni Dell'Ariccia, Paolo Mauro

SDN/13/03

INTERNATIONAL MONETARY FUND Research Department Rethinking Macro Policy II: Getting Granular1 Prepared by Olivier Blanchard, Giovanni Dell'Ariccia, Paolo Mauro April 15, 2013

DISCLAIMER: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.

JEL Classification Numbers:

E44, E52, E58, G38, H50 Monetary policy, Inflation targets, Zero lower bound, Fiscal consolidation, Fiscal multipliers, Financial stability, Macroprudential policy OBlanchard@imf.org; GDellariccia@imf.org; PMauro@imf.org

Keywords: Authors’ E-mail Address:

1

This paper was written as background for a conference on “Rethinking Macroeconomic Policy II,” to take place at the International Monetary Fund, April 16–17, 2013. Olivier Blanchard is the IMF’s Economic Counsellor and Director of the Research Department. Giovanni Dell’Ariccia is an Advisor in the Research Department. Paolo Mauro is an Assistant Director in the African Department. The authors thank George Akerlof, Markus Brunnermeier, Olivier Coibion, Jorg Decressin, Avinash Dixit, Chris Erceg, Josh Felman, and Jonathan Ostry for useful comments and suggestions.

2 CONTENTS PAGE

Executive Summary ...................................................................................................................3  I. Introduction ............................................................................................................................4  II. Monetary policy ....................................................................................................................4  A. Should Central Banks Explicitly Target Activity? ...................................................5  B. Should Central Banks Target Financial Stability? ....................................................6  C. Should Central Banks Care about the Exchange Rate?.............................................7  D. How Should Central Banks Deal with the Zero Bound? ..........................................8  E. To Whom Should Central Banks Provide Liquidity?..............................................10  III. Fiscal policy .......................................................................................................................11  A. What Are the Dangers of High Public Debt? ..........................................................11  B. How to Deal with the Risk of Fiscal Dominance? ..................................................13  C. At What Rate Should Public Debt Be Reduced? ....................................................15  D. Can We Do Better Than Automatic Stabilizers? ....................................................16  IV. Macroprudential instruments .............................................................................................17  A. How to Combine Macroprudential Policy and Microprudential Regulation? ........18  B. What Macroprudential Tools Do We Have and How Do They Work? ..................18  C. How to Combine Monetary and Macroprudential Policies? ...................................20  V. Conclusions .........................................................................................................................22 References ................................................................................................................................23

3 EXECUTIVE SUMMARY The 2008–09 global economic and financial crisis shook the consensus on how to run macroeconomic policy. It reminded us of the dangers associated with financial sector imbalances; showed the limitations of monetary...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Macro Policies 30 Marker Essay
  • Policy Proces Part Ii Essay
  • Policy Anaysis Ii Essay
  • Essay about fiscal policy
  • “The expansionist policies of the fascist states were the major cause of World War II”. Essay
  • macro Essay
  • macros Essay
  • MACRO Essay

Become a StudyMode Member

Sign Up - It's Free