Who's Talking About the Future of Macroeconomic Policies

IMF Blog, April 5, 2011

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Open, wide-ranging, and balanced discussion convened by Olivier Blanchard with co-hosts David Romer, Michael Spence & Joseph Stiglitz.
Goal: to rethink macroeconomic models, policy tools, and their application in light of changes in the global economic and financial system: "The crisis was a wakeup call for theorists and policymakers… Economic models, policy tools, and how they are applied need to catch up with changes in the global economic and financial system."
Date and publication context: iMFdirect, April 5, 2011.

Openness to rethinking the "prevailing macroeconomic policy paradigm" led Paul Krugman to speculate that IMF might stand for ‘Impressive Macroeconomic Flexibility’.
The conference sought to "stir a reexamination of mainstream macroeconomists’ framework – which largely ignored finance".
The event was described as “interesting and stimulating” but also revealed divisions: Anders Aslund noted a division "between the Anglo-American macroeconomic mainstream and the rest of the world."

The challenge of addressing financial sector risk was highlighted as "tricky."
Paul Romer’s presentation prompted the view—echoed by Matthew Yglesias—that a rules-based system of financial regulation could be a "fixed target for canny bankers to exploit and undermine."
A provocative question at the conference—"Does the financial system have social value?"—was observed by Floyd Norris as one that "would not have been asked at the IMF a few years ago."

The conference touched on concrete regulatory debates, including whether "High-Frequency Trading" should be banned; framed in the source as: "Should High-Frequency Trading Be Banned? One Nobel Winner Thinks So."

High unemployment received attention; Paul Krugman warned that focusing on unemployment "instead of slashing spending now now now can expect to face harsh attacks, which leads all too many to shy away from the current policy debate."
The exchange underscores political constraints affecting the choice and communication of macroeconomic policy options.

Perry Mehrling characterized the conference as "a turning point in mainstream economic debate."
The videos from the conference were called a "brilliant" ongoing resource for students and academics.

The global financial crisis prompted consensus that macroeconomic theory and policy tools need revision.
There is rising openness to integrating finance into mainstream macroeconomic frameworks.
Regulatory design faces trade-offs: rules-based systems may be exploitable; debates include the social value of finance and the regulation of high-frequency trading.
Political economy considerations—especially around fiscal retrenchment versus unemployment—shape policy choices and public debate.
The conference served as both stimulus to academic debate and a public resource through recorded presentations.

Source: iMFdirect, April 5, 2011 — "Who's Talking About the Future of Macroeconomic Policies"

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