Abstract
From the 1980s, mainstream macroeconomic thinking experienced a strongconvergence in methodological assumptions and policy proposals for more than twodecades. This “New Macroeconomics Consensus” was characterized by the role playedby the monetary policy in macroeconomic adjustment. Fiscal policy was set aside; itshould only be concerned with keeping public debt in a stable path in order to ensurethe “economic fundamentals”. However, the need for active and unconventionalpolicy measures during the 2008 global economic crisis brought fiscal policy back tothe mainstream debate. This paper briefly describes this convergence, discussing therole it assigned for fiscal policy before the crisis, and then examines the issues the postcrisis debate concentrated on, showing how it differs from the previous mainstreamconception of fiscal policy. We suggest that mainstream limitations to deal with fiscalpolicy may have opened a window of opportunity for a broader review of its role as apolicy tool.
Highlights
The two decades preceding the 2008 financial crisis brought about a considerable convergence in mainstream macroeconomic thinking, known as the New Macroeconomic Consensus (NMC)
The crisis stressed the shortcomings of depending on monetary policy as the only macroeconomic policy tool and showed the need of an active fiscal policy to avoid a deep economic downturn and to support the initial economic recovery from the Great Recession
Given the size of the crisis and the corresponding fiscal packages governments implemented around the world, the natural consequence was the deterioration of public accounts in most economies – though one must not forget that a significant part of the increase of public debt resulted from the socialization of private debt
Summary
The two decades preceding the 2008 financial crisis brought about a considerable convergence in mainstream macroeconomic thinking, known as the New Macroeconomic Consensus (NMC). This consensus upgraded the role of monetary policy as an effective policy tool, while downgrading the role of fiscal policy. The third section deals with the impacts of the 2008 crisis on the mainstream debate about fiscal policy It shows the fierce debate about the size and duration of fiscal multipliers, the relative convergence with regard to automatic fiscal stabilizers and the discussion about fiscal sustainability.
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