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Soon after the Lehman crisis, the International Monetary Fund (IMF) surprised its critics with a reconsideration of its research and advice on fiscal policy. The paper…
Soon after the Lehman crisis, the International Monetary Fund (IMF) surprised its critics with a reconsideration of its research and advice on fiscal policy. The paper traces the influence that the Fund’s senior management and research elite has had on the recalibration of the IMF’s doctrine on fiscal policy. The findings suggest that overall there has been some selective incorporation of unorthodox ideas in the Fund’s fiscal doctrine, while the strong thesis that austerity has expansionary effects has been rejected. Indeed, the Fund’s new orthodoxy is concerned with the recessionary effects of fiscal consolidation and, more recently, endorses calls for a more progressive adjustment of the costs of fiscal sustainability. These changes notwithstanding, the IMF’s adaptive incremental transformation on fiscal policy issues falls short of a paradigm shift and is best conceived of as an important recalibration of the precrisis status quo.
The new economic-policy regime in Sweden in the 1990s included deregulation, central-bank independence, inflation targets and fiscal rules but also active labour market…
The new economic-policy regime in Sweden in the 1990s included deregulation, central-bank independence, inflation targets and fiscal rules but also active labour market policy and voluntary incomes policy. This chapter describes the content, determinants and performance of the new economic policy in Sweden in a comparative, mainly Nordic, perspective. The new economic-policy regime is explained by the deep recession and budget crisis in the early 1990s, new economic ideas and the power of economic experts. In the 1998–2007 period, Sweden displayed relatively low inflation and high productivity growth, but unemployment was high, especially by national standards. The restrictive monetary policy was responsible for the low inflation, and the dynamic (ICT) sector was decisive for the productivity miracle. Furthermore, productivity increases in the ICT sector largely explains why the Central Bank undershot its inflation target in the late 1990s and early 2000s. The new economic-policy regime in Sweden performed well during the global financial crisis. However, as in other OECD countries, the moderate increase in unemployment was largely attributed to labour hoarding. And the rapid recovery of the Baltic countries made it possible for Sweden to avoid a bank crisis.
In this chapter, the historical and theoretical evolution of the policy framework in Europe is presented. It begins from the early steps guided by the general principles…
In this chapter, the historical and theoretical evolution of the policy framework in Europe is presented. It begins from the early steps guided by the general principles of the Keynesian theory in open economies, goes through its revision after the 1970s and the fall of the Bretton Woods agreements, the creation of the European monetary system, and ends with a presentation of the theoretical underpinning that brought to the model on which the European monetary union was built on. The evolution of the economic theory is pieced together, in the light of the main historical and political facts that occurred. A first insight about the flaws of the Eurozone policy framework is provided.
This chapter argues that monetary integration must precede, rather than follow, monetary unification, in order to avoid the occurrence of structural and systemic crises…
This chapter argues that monetary integration must precede, rather than follow, monetary unification, in order to avoid the occurrence of structural and systemic crises. It briefly overviews the relevant literature on european monetary union (EMU) with regard to the criteria to set up an optimum currency area (OCA) according to the mainstream view. It then points out that adopting the euro as single currency for a number of heterogeneous countries led inevitably to a number of major negative effects, so much so because of the counterproductive financial constraints induced by the Euro-area fiscal and monetary policies framework. Particularly, the lack of fiscal transfers between these countries and the dogmatic attitude of the European Central Bank (ECB) as regards its policy strategy and goal increase, rather than reducing, the unemployment rate, and the degree of financial instability across the euro area. In fact, a way out of the euro area exists without renouncing to the (long-run) benefits of monetary integration. It implies that countries whose population suffers most of “fiscal consolidation” introduce their national currencies again, limiting the use of the euro to their central banks only, in order for them to settle all international trade and financial-market transactions carried out by residents in these countries. This monetary–structural reform will be instrumental in increasing financial stability and employment levels across Europe, thereby inducing positive effects also for trade and public finance.
The effectiveness of fiscal policy is an interesting field in literature of macroeconomics. The purpose of this paper is to investigate the effects of fiscal policy on…
The effectiveness of fiscal policy is an interesting field in literature of macroeconomics. The purpose of this paper is to investigate the effects of fiscal policy on economic growth under contributions from the differences in institutions and external debt levels.
The authors use panel data from 2002 to 2014 from 20 emerging markets and use GMM estimators for unbalanced panel data.
The results show positive growth effects of fiscal policy across emerging markets in the examined periods. Notably, the improvement in institutions promotes higher crowding-in effects of fiscal policy. In addition, this paper finds interesting evidences that the external debt has non-linear effects on economic growth, whereas the heterogeneous effects of fiscal policy on economic growth as positive effects in low indebted level and negative effect in high indebted level may explain the mechanism of this non-linear relationship.
This study proposes the non-linear relationship of fiscal growth effects in emerging economies under the dynamic of debt levels.
Using recent literature, examines developments in seven macroeconomic schools of thought: orthodox Keynesian, monetarist, new classical, real business cycle theory, new…
Using recent literature, examines developments in seven macroeconomic schools of thought: orthodox Keynesian, monetarist, new classical, real business cycle theory, new Keynesian, Austrian and post‐Keynesian. Describes all of these and classifies them as orthodox, new or radical. After setting out the differences, discusses the degree of agreement between the schools of thought. Concludes that macroeconomics is constantly evolving, resulting in new disagreements requiring a new consensus.
This chapter investigates the nature of the transformation of macroeconomics by focusing on the impact of the Great Depression on economic doctrines. There is no doubt…
This chapter investigates the nature of the transformation of macroeconomics by focusing on the impact of the Great Depression on economic doctrines. There is no doubt that the Great Depression exerted an enormous influence on economic thought, but the exact nature of its impact should be examined more carefully. In this chapter, I examine the transformation from a perspective which emphasizes the interaction between economic ideas and economic events, and the interaction between theory and policy rather than the development of economic theory. More specifically, I examine the evolution of what became known as macroeconomics after the Depression in terms of an ongoing debate among the “stabilizers” and their critics. I further suggest using four perspectives, or schools of thought, as measures to locate the evolution and transformation; the gold standard mentality, liquidationism, the Treasury view, and the real-bills doctrine. By highlighting these four economic ideas, I argue that what happened during the Great Depression was the retreat of the gold standard mentality, the complete demise of liquidationism and the Treasury view, and the strange survival of the real-bills doctrine. Each of those transformations happened not in response to internal debates in the discipline, but in response to government policies and real-world events.