Automatic Stabilizers in a Low-Rate Environment

Olivier Blanchard and Lawrence H. Summers

AEA Papers and Proceedings, 2020, vol. 110, 125-30

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.

JEL-codes: E23 E24 E32 E52 E62 E63 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (13)

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DOI: 10.1257/pandp.20201075

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