NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Rethinking Stabilization Policy: Evolution or Revolution?

Olivier J. Blanchard, Lawrence H. Summers

NBER Working Paper No. 24179
Issued in December 2017
NBER Program(s):The Economic Fluctuations and Growth Program

The obvious lesson from the Great Financial Crisis is that the financial system matters and financial crises will probably happen again. The second, more general, lesson is that the economy is often not self-stabilizing. These two lessons, together with an environment where neutral interest rates are likely to remain low, have clear implications for the design of stabilization policies.

At a minimum, they suggest that policies may need to become more aggressive, both ex-ante and ex-post, with a rebalancing of the roles of monetary, fiscal and financial policies. In particular, while low neutral rates decrease the scope for using monetary policy, they increase the scope for using fiscal policy. Think of such rebalancing as evolution. If however, neutral rates become even lower, or financial regulation turns out to be insufficient to prevent crises, more dramatic measures, including larger fiscal deficits, revised monetary policy targets, or sharper restrictions on the financial system, may be needed. Think of this as revolution. Time will tell.

download in pdf format
   (234 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w24179

Users who downloaded this paper also downloaded* these:
Jordà, Knoll, Kuvshinov, Schularick, and Taylor w24112 The Rate of Return on Everything, 1870–2015
Korinek and Stiglitz w24174 Artificial Intelligence and Its Implications for Income Distribution and Unemployment
Bordo w24154 An Historical Perspective on the Quest for Financial Stability and the Monetary Policy Regime
Gertler, Kiyotaki, and Prestipino w24126 A Macroeconomic Model with Financial Panics
Taylor w24149 Rules Versus Discretion: Assessing the Debate Over the Conduct of Monetary Policy
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us