IMF Survey : Blanchard: Looking Forward, Looking Back
IMF News, August 31, 2015
Source details
- Canonical URL
- IMF Survey : Blanchard: Looking Forward, Looking Back
Other formats
Bibliographic details
- Published: August 31, 2015
Overview
- Olivier Blanchard will step down as Economic Counsellor and Director of the IMF's Research Department at the end of September.
- He will join the Peterson Institute for International Economics in October as the first C. Fred Bergsten senior fellow.
- Blanchard joined the IMF on September 1, 2008; two weeks later Lehman Brothers collapsed, marking the start of the 2008-09 global financial crisis.
- Interview date on the page: August 31, 2015.
- Blanchard describes his intention to focus research: from answering “a thousand questions” to addressing “ten” of those questions more deeply.
Crisis experience and implications for macroeconomics
- Findings and reflections:
- The crisis forced rethinking of many cherished beliefs about fiscal policy, fiscal multipliers, unconventional monetary policy, macroprudential tools, capital flows, labor market policies, and micro/macro flexibility.
- Mainstream macroeconomics had largely taken the financial system for granted; the “financial plumbing” matters and can hide serious macro problems.
- The financial crisis raises a potentially existential crisis for macroeconomics because aggregate relations can conceal micro-level vulnerabilities.
- A “hundred intellectual flowers” are blooming post-crisis, including revived interest in Hyman Minsky’s financial instability hypothesis, Kaldorian models, monetary financing of fiscal deficits, and hysteresis.
- There is a swing from markets toward government intervention (macroprudential tools, capital controls) combined with skepticism about government intervention efficiency.
- On changing IMF views and credibility:
- Reassessing positions (e.g., fiscal multipliers) was necessary; previous underestimation of output drag from fiscal consolidation was based on prior evidence that proved misleading when interest rates are close to zero and monetary policy cannot offset budget cuts.
- Admitting underestimation drew criticism but, according to Blanchard, ultimately increased IMF credibility by allowing use of better assumptions later.
IMF roles and how they should evolve
- Core roles asserted as remaining appropriate: surveillance, adjustment programs, liquidity provision, technical assistance.
- Surveillance:
- IMF uniquely positioned to analyze interactions between economies and suggest rules of the international game.
- Example of work: capital flows over the previous seven years.
- Adjustment programs:
- Program design needs adjustment given increasing gross external asset and liability positions of countries.
- Need to limit how much program funds go to pay short-term creditors.
- Reforms under discussion at the Fund noted as important: wider use of the debt rescheduling option, elimination of the systemic exemption.
- Liquidity provision:
- Gross asset/liability positions create risk of very large sudden stops and the need for large-scale international liquidity provision.
- Current combination of central bank swap lines and Fund liquidity programs described as a “strange contraption”; should be better integrated with regional agreements to reduce political factors in allocation.
- Technical assistance:
- IMF technical assistance and capacity building are invaluable; IMF is positioned to advise on matters from designing inflation targeting regimes to improving tax collection.
- Doing even more technical assistance would be beneficial.
- On public versus private engagement:
- IMF should be both a trusted confidential advisor and a public shaper of national and international debates.
- Strategic choice between private first engagement and public advocacy: example given of arguing for debt relief in the Greek program—first privately, then publicly when private channels failed.
Longer-term worries and implications for policy advice
- Key longer-term concerns:
- “There is a good chance that we have entered a period of low productivity growth.”
- “There is a chance that we have entered a period of structurally weak demand, which will require very low interest rates.”
- “Low growth combined with increasing inequality, is not only unacceptable morally, but extremely dangerous politically.”
- Implications for IMF policy advice:
- Must address longer-run issues, not only short-run problems.
- Recognize IMF is not naturally expert on all structural issues and should work with OECD, World Bank, and others.
- Be realistic about politically feasible structural reforms and what they can reasonably achieve.
Research agenda and next steps for Blanchard
- Immediate research focus at Peterson Institute:
- Examine in-depth what happened in Portugal, in Ireland, in Iceland, in Greece.
- Study measures countries can use to control and mold capital flows.
- Continue to “rethink macro” by tackling a smaller set of questions more deeply.
- Personal practice and tone:
- Blanchard states he never felt he had to hide or fuzz positions during his seven years at the Fund.
- “People who expect me to bare my soul after I leave the Fund will be disappointed. What you got is what you’ll get.”
Key numbers and time references preserved exactly
- September 1, 2008 (IMF start date)
- Two weeks later (Lehman collapse)
- 2008-09 global financial crisis
- August 31, 2015 (interview/publication date on page)
- end of September (resignation timing)
- October (Peterson Institute start)
- seven years (period Blanchard served and references to Fund work)
- a thousand questions / ten of these thousand questions
Source: IMF Survey : Blanchard: Looking Forward, Looking Back (IMF, August 31, 2015).