IDEAS home Printed from https://ideas.repec.org/a/oup/oxford/v25y2009i4p507-552.html
   My bibliography  Save this article

Remaking macroeconomic policy after the global financial crisis: a balance-sheet approach

Author

Listed:
  • Christopher Adam
  • David Vines

Abstract

This paper describes the origins of the global financial crisis and how the prevailing New Keynesian macroeconomic orthodoxy failed to anticipate its severity. This failure, we argue, stemmed from an incomplete understanding of the pivotal role of financial institutions in the amplification of the crisis and its transmission to the wider economy. Low global interest rates and a consequent 'search for yield' in the pre-crisis period encouraged financial institutions to build highly leveraged balance sheets which, in turn, generated extremely large asset-price movements when a 'small event'--the downturn in the US sub-prime mortgage market--triggered the worldwide crisis. The paper then briefly describes the element of the broadly successful and coordinated macroeconomic policy response to the crisis before turning to the medium-term challenges facing policy-makers in sustaining global recovery. At the national level, we focus on the resolution of fiscal imbalances which contributed, in part, to the crisis, and which then worsened because of the policy actions which have been taken to deal with it. At the international level, we emphasize the need to rectify the imbalances between savings and investment in many significant countries. This will require greater coordination of macroeconomic policy across the world's major economies. It will also involve strengthening the role, and the governance, of the International Monetary Fund. Copyright 2009, Oxford University Press.

Suggested Citation

  • Christopher Adam & David Vines, 2009. "Remaking macroeconomic policy after the global financial crisis: a balance-sheet approach," Oxford Review of Economic Policy, Oxford University Press, vol. 25(4), pages 507-552, Winter.
  • Handle: RePEc:oup:oxford:v:25:y:2009:i:4:p:507-552
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/oxrep/grq014
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sherstnev, Mikhail, 2011. "Экономический Кризис, Мировая Экономика, Экономическая Наука И Экономическая Политика
      [Economic crisis, world economy, economics and economic policy]
      ," MPRA Paper 31912, University Library of Munich, Germany.
    2. David Vines, 2010. "What Keynes Missed and Krugman is Missing: The Short/Long Choice," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 17(1), pages 101-112.
    3. Robert Boyer, 2012. "The four fallacies of contemporary austerity policies: the lost Keynesian legacy," Cambridge Journal of Economics, Oxford University Press, vol. 36(1), pages 283-312.
    4. Sherstnev, Mikhail, 2013. "World economy, economics and economic policy: what emerges after the crisis?," MPRA Paper 49019, University Library of Munich, Germany.
    5. ORASTEAN Ramona, 2013. "The Us Dollar, The Euro, The Japanese Yen And The Chinese Yuan In The Foreign Exchange Market – A Comparative Analysis," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 8(2), pages 102-107, August.
    6. Allsopp, Christopher & Vines, David, 2015. "Monetary and fiscal policy in the Great Moderation and the Great Recession," CEPR Discussion Papers 10894, C.E.P.R. Discussion Papers.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:oxford:v:25:y:2009:i:4:p:507-552. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum). General contact details of provider: https://academic.oup.com/oxrep .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.