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Automatic Stabilizers in a Low-Rate Environment

Author

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  • Olivier J. Blanchard
  • Lawrence H. Summers

Abstract

In a world where monetary policy cannot assume responsibility for stabilization policy, there is a strong need for fiscal policy to address stabilization issues. In this context, we argue for "semi-automatic stabilizers," aimed at reducing unemployment slumps rather than output recessions. We show that the hole left by the limits on monetary policy implies a large role for fiscal policy in general and for semi-automatic stabilizers in particular. Finally, we argue that the design of stabilizers, whether they focus on mechanisms that rely primarily on income or on intertemporal substitution effects, depends crucially on the general design of discretionary policy.

Suggested Citation

  • Olivier J. Blanchard & Lawrence H. Summers, 2020. "Automatic Stabilizers in a Low-Rate Environment," AEA Papers and Proceedings, American Economic Association, vol. 110, pages 125-130, May.
    • Handle: RePEc:aea:apandp:v:110:y:2020:p:125-30
    DOI: 10.1257/pandp.20201075
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    Cited by:

    1. Federico Bassi, 2020. "Chronic Excess Capacity and Unemployment Hysteresis in EU Countries. A Structural Approach," DISCE - Working Papers del Dipartimento di Economia e Finanza def091, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    2. Jérôme Creel, 2021. "Establishing a Fiscal Dialogue in Europe," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(3), pages 339-355, September.
    3. Mathias Dolls & Clemens Fuest & Andreas Peichl & Christian Wittneben, 2022. "Fiscal Consolidation and Automatic Stabilization: New Results," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(3), pages 420-450, September.
    4. Philippa Sigl-Gloeckner & Max Krahé & Pola Schneemelcher & Florian Schuster & Viola Hilbert & Henrika Meyer, 2021. "Eine neue deutsche Finanzpolitik," Working Papers 2, Forum New Economy.
    5. Bergant, Katharina & Forbes, Kristin, 2023. "Policy packages and policy space: Lessons from COVID-19☆," European Economic Review, Elsevier, vol. 158(C).
    6. Sigl-Glöckner, Philippa & Krahé, Max & Schneemelcher, Pola & Schuster, Florian & Hilbert, Viola & Meyer, Henrika, 2021. "Eine neue deutsche Finanzpolitik," Papers 277883, Dezernat Zukunft - Institute for Macrofinance, Berlin.
    7. Vaz de Castro, Afonso, 2022. "Risk Aversion and Recessive Impacts of Austerity," MPRA Paper 111875, University Library of Munich, Germany.
    8. Croitorov, Olga & Giovannini, Massimo & Pfeiffer, Philipp & Ratto, Marco & Vogel, Lukas, 2022. "Fiscal Stabilisation in a Low-Interest and High-Debt Environment," VfS Annual Conference 2022 (Basel): Big Data in Economics 264142, Verein für Socialpolitik / German Economic Association.
    9. Adam S. Posen, 2021. "Fiscal Success During COVID-19 Says Believe the Good News," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 56(4), pages 190-193, July.
    10. Schuster, Florian & Krahé, Max & Sigl-Glöckner, Philippa, 2021. "Wird die Konjunkturkomponente der Schuldenbremse in ihrer heutigen Ausgestaltung ihrer Aufgabe noch gerecht? Analyse und ein Reformvorschlag," Papers 277885, Dezernat Zukunft - Institute for Macrofinance, Berlin.
    11. Marzia Romanelli & Pietro Tommasino & Emilio VadalÃ, 2022. "The future of European fiscal governance: a comprehensive approach," Questioni di Economia e Finanza (Occasional Papers) 691, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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