Practical Stabilization Policy in the Twenty-First Century

Martin Eichenbaum

AEA Papers and Proceedings, 2025, vol. 115, 158-62

Abstract: In 1997, the American Economic Association convened a panel to address whether a core of usable macroeconomics exists. The consensus about monetary policy has not changed since then. However, in a sharp reversal, there is now widespread consensus that fiscal policy can be a useful stabilization tool. I discuss why the latter consensus broke down and what form countercyclical fiscal policy should take in a world marked by two constraints: (i) The benefits of the policy ought to be robust to deviations from rational expectations and the presence of liquidity-constrained consumers, and (ii) expanded fiscal stabilization policies are temporary.

JEL-codes: E31 E52 E62 E63 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1257/pandp.20251115

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