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Fiscal Policy After the Crisis: What Role for Fiscal Policy in Times of Crisis, Low Interest Rates and High Public Debts?
[working paper]
Corporate Editor
Universität Hamburg, Fak. Wirtschafts- und Sozialwissenschaften, FB Sozialökonomie, Zentrum für Ökonomische und Soziologische Studien (ZÖSS)
Abstract In 2009, just before the full outbreak of the global financial crisis, Olivier Blanchard (2009) published an article giving a favourable appraisal of the state of macroeconomics. He came to this verdict on the basis that, after a long period of fierce theoretical debate, the discipline had converged... view more
In 2009, just before the full outbreak of the global financial crisis, Olivier Blanchard (2009) published an article giving a favourable appraisal of the state of macroeconomics. He came to this verdict on the basis that, after a long period of fierce theoretical debate, the discipline had converged on a model known as new consensus macroeconomics (NCM). In the models that made up NCM, fiscal policy played no role - or, to be more precise, fiscal policy had to follow a balanced-budget rule, with the task of stabilising an economy over the business cycle entrusted entirely to monetary policy (following a Taylor rule). And in the midst of the global financial crisis, Carmen Reinhart and Kenneth Rogoff (2010) proposed the figure of 90% of GDP as a threshold level for public debt which, if exceeded, would harm economic growth, leaving fiscal austerity as the best way to trigger economic recovery. Only a decade later, the economics profession now appears to have taken a very different view on fiscal policy: in order to cope with the next economic crisis, resulting from the coronavirus pandemic, most economists recommend an active fiscal policy stance and even a huge increase in debt-to-GDP levels. This paper will shed some light on these developments in economic policymaking and explore the future of fiscal policy.... view less
Keywords
fiscal policy; national debt; stabilization policy; macroeconomics; economic crisis; economic policy
Classification
Economic Policy
Document language
English
Publication Year
2022
City
Hamburg
Page/Pages
18 p.
Series
ZÖSS Discussion Paper, 92
ISSN
1868-4947
Status
Published Version; reviewed
Licence
Deposit Licence - No Redistribution, No Modifications