Critiquing Macroeconomic Policy

Macroeconomic policy tools are those that allow the world's governments and central bankers to manage national economies. These include monetary policy - which means controlling a nation's money supply through interest rate adjustments, for example - and fiscal policy, which includes tax and expenditure changes like stimulus packages.

The recent financial crisis has many economists re-thinking the conventional wisdom on many of these topics. A good, concise, and highly readable example of these critiques is this policy note (PDF) recently released by the International Monetary Fund. The report reads:

It was tempting for macroeconomists and policymakers alike to take much of the credit for the steady decrease in cyclical fluctuations from the early 1980s on and to conclude that we knew how to conduct macroeconomic policy. We did not resist temptation. The crisis clearly forces us to question our earlier assessment.

This is what this paper tries to do. It proceeds in three steps. The first reviews what we thought we knew. The second identifies where we were wrong. The third, and the most tentative of the three, takes a first pass at the contours of a new macroeconomic policy framework.

It's a good resource for students interested in these issues.