Rethinking Macro Policy II


Book Description

This note explores how the economic thinking about macroeconomic management has evolved since the crisis began. It discusses developments in monetary policy, including unconventional measures; the challenges associated with increased public debt; and the policy potential, risks, and institutional challenges associated with new macroprudential measures. Rationale: The note contributes to the ongoing debate on several aspects of macroeconomic policy. It follows up on the earlier “Rethinking” paper, refining the analysis in light of the events of the past two years. Given the relatively fluid state of the debate (e.g., recent challenges to central bank independence), it is useful to highlight that while many of the tenets of the pre-crisis consensus have been challenged, others (such as the desirability of central bank independence) remain valid.




What Have We Learned?


Book Description

Top economists consider how to conduct policy in a world where previous beliefs have been shattered by the recent financial and economic crises. Since 2008, economic policymakers and researchers have occupied a brave new economic world. Previous consensuses have been upended, former assumptions have been cast into doubt, and new approaches have yet to stand the test of time. Policymakers have been forced to improvise and researchers to rethink basic theory. George Akerlof, Nobel Laureate and one of this volume's editors, compares the crisis to a cat stuck in a tree, afraid to move. In April 2013, the International Monetary Fund brought together leading economists and economic policymakers to discuss the slowly emerging contours of the macroeconomic future. This book offers their combined insights. The editors and contributors—who include the Nobel Laureate and bestselling author Joseph Stiglitz, Federal Reserve Vice Chair Janet Yellen, and the former Governor of the Bank of Israel Stanley Fischer—consider the lessons learned from the crisis and its aftermath. They discuss, among other things, post-crisis questions about the traditional policy focus on inflation; macroprudential tools (which focus on the stability of the entire financial system rather than of individual firms) and their effectiveness; fiscal stimulus, public debt, and fiscal consolidation; and exchange rate arrangements.




Rethinking Macroeconomics for Sustainability


Book Description

Macroeconomic policies have devastating effects on the environment. They shape the economic processes that drive deforestation, soil erosion, the exhaustion of living marine resources, greenhouse gas emissions, and the massive loss of biodiversity. Despite this, the vital connection between macroeconomic policies and the environment has thus far received little attention by the academic and the policy-making communities. Rethinking Macroeconomics for Sustainability reveals the linkages between monetary, financial and fiscal policies, and the environmental degradation that threatens the planet's biosphere. In doing so, it examines the complex lines of transmission from policy priorities all the way down to the effects at the local level, as well as analyzing the deep-seated relationship between macroeconomic policy models and their impacts on growth, peoples' livelihoods and the environment. Besides exploring the relation between macroeconomic and climate change policies, as well as efforts to 'green' the world economy, the book considers five key case studies in Latin American economies. Going beyond this, it also sets out specific policy recommendations, both at the national and international levels. All this is based on the incontrovertible premise that macroeconomic policies must to be redesigned in order to attain long-term sustainability objectives, and that monetary and fiscal policies are as important for environmental stewardship as they are for growth and prosperity.




Combating Inequality


Book Description

Leading economists and policymakers consider what economic tools are most effective in reversing the rise in inequality. Economic inequality is the defining issue of our time. In the United States, the wealth share of the top 1% has risen from 25% in the late 1970s to around 40% today. The percentage of children earning more than their parents has fallen from 90% in the 1940s to around 50% today. In Combating Inequality, leading economists, many of them current or former policymakers, bring good news: we have the tools to reverse the rise in inequality. In their discussions, they consider which of these tools are the most effective at doing so.




Rethinking the Theory of Money, Credit, and Macroeconomics


Book Description

This book provides a comprehensive re-working of the basic principles of monetary macroeconomics in an alternative monetary model (AMM) of economic growth, the business cycle, inflation and income distribution. These principles differ considerably from those advanced in the standard macroeconomics literature and in textbooks. However, the latter have been demonstrably unsuccessful in the promotion of usable macroeconomic policy advice for the past several years, actually decades. A different approach is needed. In particular, the new approach takes seriously the vital role of credit creation and endogenous money in capitalism. It does not imagine that all of the difficult questions of economic policy-making may be resolved within a paradigm that conceptualizes economic activity as merely a question of barter exchange. The result is a blueprint for a set of growth-friendly macroeconomic policies which will promote full employment, financial stability and higher real wages – essentially for the benefit of the long-suffering middle and working classes rather for the chamber of commerce and financial interests.




Coordination of Monetary and Fiscal Policies


Book Description

Recently, monetary authorities have increasingly focused on implementing policies to ensure price stability and strengthen central bank independence. Simultaneously, in the fiscal area, market development has allowed public debt managers to focus more on cost minimization. This “divorce” of monetary and debt management functions in no way lessens the need for effective coordination of monetary and fiscal policy if overall economic performance is to be optimized and maintained in the long term. This paper analyzes these issues based on a review of the relevant literature and of country experiences from an institutional and operational perspective.




In the Wake of the Crisis


Book Description

Prominent economists reconsider the fundamentals of economic policy for a post-crisis world. In 2011, the International Monetary Fund invited prominent economists and economic policymakers to consider the brave new world of the post-crisis global economy. The result is a book that captures the state of macroeconomic thinking at a transformational moment. The crisis and the weak recovery that has followed raise fundamental questions concerning macroeconomics and economic policy. These top economists discuss future directions for monetary policy, fiscal policy, financial regulation, capital-account management, growth strategies, the international monetary system, and the economic models that should underpin thinking about critical policy choices. Contributors Olivier Blanchard, Ricardo Caballero, Charles Collyns, Arminio Fraga, Már Guðmundsson, Sri Mulyani Indrawati, Otmar Issing, Olivier Jeanne, Rakesh Mohan, Maurice Obstfeld, José Antonio Ocampo, Guillermo Ortiz, Y. V. Reddy, Dani Rodrik, David Romer, Paul Romer, Andrew Sheng, Hyun Song Shin, Parthasarathi Shome, Robert Solow, Michael Spence, Joseph Stiglitz, Adair Turner




Rethinking Macroeconomics with Endogenous Market Structure


Book Description

"The last decade has seen a lively debate in macroeconomics, with an increasing criticism on the model that seemed to be dominant in literature since the end of the 1990's, the Dynamic Stochastic General Equilibrium (DSGE, hereafter) and, consequently, the birth of some new theoretical approaches and methodologies"--




Rethinking Climate and Energy Policies


Book Description

This book calls for rethinking current climate, energy and sustainability policy-making by presenting new insights into the rebound phenomenon; i.e., the driving forces, mechanisms and extent of rebound effects and potential means of mitigating them. It pursues an innovative and novel approach to the political and scientific rebound discourse and hence, supplements the current state-of-knowledge discussed in the field of energy economics and recent reports by the Intergovernmental Panel on Climate Change. Building on central rebound publications from the past four decades, this book is divided into three main sections: Part I highlights new aspects of rebound economics by presenting insights into issues that have so far not been satisfactorily researched, such as rebounds in countries of the Global South, rebounds on the producer-side, and rebounds from sufficiency behaviour (as opposed to rebounds from technical efficiency improvements). In turn, Part II goes beyond conventional economic rebound research, exploring multidisciplinary perspectives on the phenomenon, in particular from the fields of psychology and sociology. Advancing such multidisciplinary perspectives delivers a more comprehensive understanding of rebound’s driving forces, mechanisms, and policy options. Part III puts rebounds into practice and presents several policy cases and sector-specific approaches, including the contexts of labour markets, urban planning, tourism, information and communication technologies, and transport. Lastly, the book embeds the issue into the larger debate on decoupling, green growth and degrowth, and identifies key lessons learned for sustainable development strategies and policies at large. By employing such varied and in-depth analyses, the book makes an essential contribution to the discussion of the overall question: Can resource-, energy-use and greenhouse gas emissions be substantially reduced without hindering economic growth?




Key Aspects of Macroprudential Policy - Background Paper


Book Description

The countercyclical capital buffer (CCB) was proposed by the Basel committee to increase the resilience of the banking sector to negative shocks. The interactions between banking sector losses and the real economy highlight the importance of building a capital buffer in periods when systemic risks are rising. Basel III introduces a framework for a time-varying capital buffer on top of the minimum capital requirement and another time-invariant buffer (the conservation buffer). The CCB aims to make banks more resilient against imbalances in credit markets and thereby enhance medium-term prospects of the economy—in good times when system-wide risks are growing, the regulators could impose the CCB which would help the banks to withstand losses in bad times.