Author(s): Olivier Blanchard, IMF
Date published: Jun 2014
Olivier Blanchard, Economic Counsellor and Director of the Research Department, International Monetary Fund delivered the 2014 SUERF Marjolin Lecture on “Sustaining Growth in the Short and Medium Term”. The speaker distinguished between advanced economies (AEs) and emerging market economies (EMs). In the AEs, there are still output gaps implying a need for policies to raise output and employment. In the EMs, potential growth has also declined and there is a need for structural reforms. The slow recovery in the AEs is partly explained by legacies from the financial crisis: Large Government debt, private household and company debt and bank debt. Monetary policy in the AEs implies policy interest rates close to zero and large central bank balances. Fiscal policy aim at fiscal consolidation and lower interest spreads especially in the Euro Area periphery. Statistics on household debt to income is misleading. Net worth to income is more relevant. For firms, debt to equity is relevant. Banks’ Tier 1 capital as percent of risk-weighted assets has increased everywhere from 2005 to 2013. Deflation is dangerous because it increases the real value of debt, the real interest rate and because it can lead to a deflationary spiral. Currently, the economic policy breaks are loosened but at different rates in different countries. Stronger growth in AEs will stimulate exports from EMs. Economic growth in the future is challenged by long-term trends in demographics (ageing), education (drop-out rates), fiscal pressures and innovation. In a diagram from World Economic Outlook, AEs were plotted according to net Government gross debt at the beginning of 2014, and primary fiscal balance as percent of GDP. The outliers in the diagram was Norway with positive net Government assets and a fiscal surplus, and Japan with a large Government debt and a fiscal deficit. In the years to come, economic growth in the EMs is expected to slow down but still to be much higher than in the AEs. In his concluding remarks, the Marjolin speaker recommended that the AEs reduced the speed of fiscal consolidation, recapitalized their banking systems, and normalized monetary policy. EMs should adapt to the new global environment and carry out supply-side reforms.
A citizen of France, Olivier Blanchard has spent most of his professional life in Cambridge, U.S. After obtaining his Ph.D in economics at the Massachusetts Institute of Technology in 1977, he taught at Harvard University, returning to MIT in 1982, with whom he has been affiliated since then. He is the Robert M. Solow Professor of Economics, and past Chair of the Economics Department. He has been on leave from MIT since 2008, as Economic Counsellor and Director of the Research Department of the International Monetary Fund. He is a macroeconomist, who has worked on a wide set of issues, from the role of monetary policy, to the nature of speculative bubbles, to the nature of the labor market and the determinants of unemployment, to transition in former communist countries, and to forces behind the current crisis. In the process, he has worked with numerous countries and international organizations. He is the author of many books and articles, including two textbooks in macroeconomics, one at the graduate level with Stanley Fischer, one at the undergraduate level. He is a fellow and past council member of the Econometric Society, a past vice president of the American Economic Association, and a member of the American Academy of Sciences.