## IMF Survey : Blanchard: Looking Forward, Looking Back

_IMF News, August 31, 2015_

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## Bibliographic details
- Published: August 31, 2015

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### 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).*

---


## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Research](https://www.imf.org/en/news/search)
- [Olivier Blanchard](http://www.imf.org/external/np/bio/eng/ob.htm)
- [Where danger lurks](http://www.imf.org/external/pubs/ft/fandd/2014/09/blanchard.htm)
- [Blanchard's greatest hits](http://blog-imfdirect.imf.org/2015/08/31/olivier-blanchards-greatest-hits)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sores083115a_