In the wake of crisis

251 Pages·2012·3.67 MB·English

by  Olivier Jean Blanchard

In the Wake of the Crisis

In the Wake of the Crisis
Leading Economists Reassess Economic Policy
edited by Olivier Blanchard, David Romer,
Michael Spence, and Joseph Stiglitz
The MIT Press
Cambridge, Massachusetts
London, England
© 2012 International Monetary Fund
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Library of Congress Cataloging-in-Publication Data

In the wake of the crisis : leading economists reassess economic policy / edited by
Olivier Blanchard . . . [et al.].
p. cm.
Conference proceedings.
Includes bibliographical references and index.
ISBN 978-0-262-01761-9 (hardcover : alk. paper)
1. Global Financial Crisis, 2008 – 2009 — Congresses. 2. Fiscal policy — Congresses.
3. Monetary policy— Congresses. 4. Economic development— Congresses. I. Blanchard,
Olivier.
HB37172008.I6 2012
339.5 — dc23
2011040553

10 9 8 7 6 5 4 3 2 1
Contents
Preface ix
I Monetary Policy
Questions: How Should the Crisis Affect Our Views of Monetary
Policy? 3
1 Monetary Policy in the Wake of the Crisis 7
Olivier Blanchard
2 Conventional Wisdom Challenged? Monetary Policy after the
Crisis 15
Guillermo Ortiz
3 Lessons for Monetary Policy 25
Otmar Issing
4 Macroeconomics, Monetary Policy, and the Crisis 31
Joseph Stiglitz
II Fiscal Policy
Questions: How Should the Crisis Affect Our Views of Fiscal
Policy? 45
5 Fiscal Stimuli and Consolidation 49
Parthasarathi Shome
6 What Have We Learned about Fiscal Policy from the Crisis? 57
David Romer
vi Contents
7 Fiscal Policy Responses to Economic Crisis: Perspectives from an
Emerging Market 67
Sri Mulyani Indrawati
8 Fiscal Policy 73
Robert Solow
III Financial Intermediation and Regulation
Questions: How Should the Crisis Affect Our Views about Financial
Intermediation and Regulation? 79
9 Financial Crisis and Financial Intermediation: Asking Different
Questions 83
Y. V. Reddy
10 Global Liquidity 91
Hyun Song Shin
11 Optimal Financial Intermediation: Why More Isn’ t Always
Better 101
Adair Turner
12 Process, Responsibility, and Myron’ s Law 111
Paul Romer
IV Capital-Account Management
Questions: How Should the Crisis Affect Our Views of Capital-
Account Management? 127
13 Notes on Capital-Account Management 129
Ricardo Caballero
14 Remarks on Capital-Account Management and Other
Macropolicy Topics 133
Arminio Fraga
15 Capital-Account Management: Key Issues 137
Rakesh Mohan
16 The Case for Regulating Cross-Border Capital Flows 145
Jos é Antonio Ocampo
Contents vii
V Growth Strategies
Questions: How Should the Crisis Affect Our Views of Growth and
Growth Strategies? 153
17 Do We Need to Rethink Growth Policies? 157
Dani Rodrik
18 Is the Chinese Growth Model Replicable? 169
Andrew Sheng
19 Growth in the Postcrisis World 175
Michael Spence
VI The International Monetary System
Questions: How Should the Crisis Affect Our Views of the
International Monetary System? 187
20 The Implications of Cross-Border Banking and Foreign-Currency
Swap Lines for the International Monetary System 191
M á r Gu ð mundsson
21 The International Monetary System 199
Olivier Jeanne
22 International Monetary System Reform: A Practical Agenda 209
Charles Collyns
23 Liquidity and the International Monetary System 215
Maurice Obstfeld
Concluding Remarks 225
Olivier Blanchard
List of Contributors 229
Index 233

Preface
As a world economic crisis developed in 2008 and lasted longer than
most economists predicted, it became increasingly clear that beliefs about
macroeconomics and macroeconomic policy needed to be thoroughly
examined. In the throes of the crisis, policymakers had to improvise.
What should be done when interest rates reach the zero floor? How is
liquidity best provided to segmented financial institutions and markets?
How much should fiscal policy be used when starting from high levels
of debt?
After the initial fires were put out, many questions remained. Is infla-
tion targeting the right way to conduct policy, or should the monetary
authority watch a larger set of targets? Should central bankers develop
and use new tools, so-called macroprudential instruments? Could fiscal
policy be used more efficiently? Were the precrisis targets for public debt
the right ones? Should there be limits on current-account imbalances?
Should countries use capital controls? Should there be better mechanisms
to deliver global liquidity? What, if anything, can policymakers do to
turn anemic recoveries into robust ones?
We at the International Monetary Fund badly needed answers or at
least beginnings of answers to these questions. To begin the process,
David Romer, Michael Spence, and Joseph Stiglitz helped me organize a
conference at the IMF on March 7– 8, 2011, for prominent academics
and policymakers. We organized the Conference on Macro and Growth
Policies in the Wake of the Crisis around six themes — monetary policy,
fiscal policy, financial regulation, capital-account management, growth
strategies, and the international monetary system. For each theme, David
and I wrote a short note that listed some questions on the topic. We
asked for views on these themes, not for formal papers. The conference