Tuesday, December 28, 2021

Olivier Blanchard's Book for Open Review

If you want to read on how fiscal policy operates during low interest rate regime, you can read the Draft of the book by Olivier Blanchard here. You can also post your comments and suggestions.

In another post, he wrote 45 Key Takeaways from the book, explaining why the low real interest rates require a revisit to the scope and roles of fiscal policy. I posted 3 take aways below:

"ON THE EVOLUTION OF RATES

1. Safe real interest rates have declined steadily since the mid-1980s. The decline is due neither to the global financial crisis nor to the COVID-19 crisis. It has been common to all advanced economies.

2. Taking a much longer view, safe real interest rates have actually declined since the 14th century.... But the recent decline is much more pronounced.

3. The decline in safe real interest rates reflects a decline in neutral interest rates, i.e., the rates consistent with full employment. They reflect a chronic weakness in private demand—equivalently strong saving and weak investment, together with a strong demand for safe assets. This situation is what Alvin Hansen and, more recently, Lawrence Summers have called secular stagnation..."


Image credit - IMF Blog



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