Today’s Must-Must-Read: Olivier Blanchard: Rethinking Macroeconomic Policy: Introduction

…My subtitle was rejected by one of the co-organisers, namely Larry Summers. He argued that I was far too optimistic, that we were nowhere close to knowing where were going. Arguing with Larry is tough, so I chose an agnostic title…. We are indeed proceeding in the trenches. But where the trenches are eventually going remains unclear…. Let me start with macroprudential tools. If anything, the Crisis has convinced most of us that they have to be part of the basic macro toolkit…. But where are these trenches going? We do not know the shape of the future financial system, for example the degree to which it will be institution/bank based or market based. Sure, the same uncertainty applies to, say, the high-tech sector, and we do not worry; we just observe, and we shall see where it goes. But finance is different. Policymakers cannot be simple observers, as what the financial system will be depends very much on regulation. And we do not have a good sense of what regulation should be…