CXO

What Have We Learned About Fiscal Policy From The Crisis?

Date Added: Mar 2011
Format: PDF

The financial and macroeconomic crisis that began in 2007 and 2008 has shattered some of the core tenets of macroeconomic policymaking: the authors thought that the zero lower bound on nominal interest rates was a minor issue, but it has proven central to the behavior of the macroeconomy. They had not paid much attention to issues of financial regulation and financial disruptions in macroeconomics, but they too have turned out to be critical to macroeconomic performance. The idea that policymakers would be willing to tolerate years of exceptionally high unemployment due to a deficiency of aggregate demand has gone from unthinkable just five years ago to being the truth today.