In search of a smoking gun: macroeconomic policies and the crisis

This paper looks at macroeconomic factors behind the current crisis. The first part looks at how global macroeconomic trends--including sustained strong growth, low real interest rates, and high saving rates--provided an environment conducive to increased financial risk-taking. The second part examines macroeconomic policies and the international monetary system, assessing whether too easy monetary policy contributed to asset price bubbles, whether excessive reserve accumulation contributed to a glut of global savings, whether the US dollar's reserve currency status aggravated financial excesses, and whether policies in capital-importing countries were sufficiently countercyclical. We do not find a single factor that can explain the crisis and account for differences in countries' experiences leading up to it; instead, the contribution of macroeconomic policy choices seems complex and ambiguous. However, there are still important policy lessons for, in particular, rebalancing economies away from export-dominated growth and having monetary policy place greater weight on macrofinancial stability. Copyright 2009, Oxford University Press.