Macroeconomics 7th Edition By Olivier Blanchard

[Francisca Noggles]

OlivierJean Blanchard (.mw-parser-output .IPA-label-smallfont-size:85%.mw-parser-output .references .IPA-label-small,.mw-parser-output .infobox .IPA-label-small,.mw-parser-output .navbox .IPA-label-smallfont-size:100%French: [blɑ̃ʃaʁ]; born December 27, 1948)[17] is a French economist and professor. He is serving as the Robert M. Solow Professor Emeritus of Economics at the Massachusetts Institute of Technology and as the C. Fred Bergsten Senior Fellow at the Peterson Institute for International Economics.[18]

Blanchard was the chief economist at the International Monetary Fund from 1 September 2008 to 8 September 2015.[19][20][21] Blanchard was appointed to the position under the tenure of Dominique Strauss-Kahn; he was succeeded by Maurice Obstfeld.[22] According to IDEAS/RePEc, he is one of the most cited economists in the world.[23] Blanchard has also authored an undergraduate macroeconomics textbook, appearing so far in eight editions, which is one of the most widely used economics books at the undergraduate level, and in 1989 a graduate-level textbook (together with Stanley Fischer), which was prominent in its time.

Blanchard graduated from ESCP in 1970.[24] From 1970 to 1973, he completed graduate level courses in economics and applied mathematics at Paris Dauphine University and Paris Nanterre University.[25] He obtained a PhD in economics from MIT in 1977 and then taught at Harvard University between 1977 and 1983, after which time he returned to MIT as a professor.[26] His areas of expertise in macroeconomics are the functions of monetary policy, the role of speculative bubbles, the determinants of unemployment and the role of the labor market as a whole, the effects on countries who have transitioned away from communism, and the factors that have sparked the most recent global financial crises. Between 1998 and 2003 Blanchard served as the chairman of the economics department at MIT.

Blanchard has published numerous research papers in the field of macroeconomics, as well as undergraduate and graduate macroeconomics textbooks. In 1987, together with Nobuhiro Kiyotaki, Blanchard demonstrated the importance of monopolistic competition for the aggregate demand multiplier.[27] Most New Keynesian macroeconomic models now assume monopolistic competition for the reasons outlined by them. He is a fellow and past Council member of the Econometric Society, and a member of the American Academy of Arts and Sciences.

During his tenure as chief economist, Blanchard's reshaped IMF policies. During the Great Recession Blanchard supported global fiscal stimulus. During its slow recovery he urged a cautious removal of stimulus and advocated quantitative easing.[28]

By 2010, following the financial crisis, many countries ran significant budget deficits. There was a global turn to austerity as Washington Consensus economists encouraged governments to cut spending and raise taxes to avoid a government debt crisis, as occurred in Greece.[29] In June 2010, Blanchard and Carlo Cottarelli, the director of the IMF's fiscal affairs department, co-authored an IMF blog post entitled "Ten Commandments for Fiscal Adjustment in Advanced Economies."[30]

Under Blanchard's tenure at IMF, Jonathan D. Ostry and Andy Berg published their findings that "inequality was detrimental to sustained growth."[34][35] By April 2014, in the World Economic Outlook, Blanchard situated inequality as a "central issue" for "macroeconomic developments."[35]

as the effects of the financial crisis slowly diminish, another trend may come to dominate the scene, namely rising inequality. Though inequality has always been perceived to be a central issue, until recently it was not seen as having major implications for macroeconomic developments. This belief is increasingly called into question. How inequality affects both the macroeconomy, and the design of macroeconomic policy, will likely be increasingly important items on our agenda for a long time to come.

Blanchard has authored two textbooks in macroeconomics:[36] A seminal[37] advanced textbook for graduate students "Lectures on Macroeconomics" in 1989[37] together with Stanley Fischer, which has been called a gold standard for its era by the American Economic Association,[38] and the intermediate-level undergraduate textbook simply called "Macroeconomics". The first edition of "Macroeconomics" appeared in 1996,[39] and in 2021 its eighth edition appeared, published by Pearson Education. In a survey of 65 leading economics departments in 2021, Blanchard's textbook was the most widely used undergraduate macroeconomics textbook of all, not least because of its popularity in European universities, followed by Greg Mankiw's in second place.[39]

In the 2007 French presidential election, Blanchard supported Union for a Popular Movement presidential candidate Nicolas Sarkozy.[40] Ahead of the 2024 French legislative election, he criticised the far-right National Rally's platform but called that of the left-wing New Popular Front worse, saying that it would lead to "an economic catastrophe".[41]

In this installment, we talked to Olivier Blanchard, the C. Fred Bergsten Senior Fellow of Peterson Institute for International Economics and formerly the economic counselor and director of the Research Department at the International Monetary Fund. He was also the chair of the economics department at MIT from 1998 to 2003 and remains as Robert M. Solow Professor of Economics Emeritus.

In this interview, Blanchard discussed his view on the role of DSGE model in modern Macroeconomics and policymaking. He also explained his decision to rewrite his macroeconomics textbooks after the Great Recession. His recent research on hysteresis was also discussed.

For example, what some people called financial cycle, or I should just call it financial shocks as I am not sure if in fact there is a financial cycle, clearly has some major macroeconomic effect. This is one example of what we understand much better than in 2007.

Another thing is that as the crisis has been so complex in so many ways, I think economists are much more willing to explore new mechanisms, new distortions, and new facts now. Much more so than they were in 2007. I think the facts that we did poorly in predicting the crisis and explaining what was going on have led to more open-minded research in macroeconomics.

I think DSGE models should be theoretically based, which means that to a large extent they should be micro-founded. This should be generally accepted as a starting point. When you want to look at the effect of some new mechanism, that is what you will have in mind.

The idea is to capture what are in the big ones but to be explained in a simple way. When we want to introduce a new mechanism, we can explore first in an ISLM model and see what happens. We may then put it in the DSGE model.

The fourth type is the pure statistical models like VARs (Vector Autoregression Model). They are useful to describe the data and for assessing the correlations. We can try to see whether more structural models fit the data or not. That is a very different exercise.

The staff of the central bank should be working with the complicated models that they understand. When they go and report to the board, for example to the FOMC, they should present the result of these models.

Yet, they should also give a simpler explanation based on toy models, like the ISLM model. When the central bankers have to explain to the public what they are doing, they should use some kind of toy model formally or in words only.

He, together with other researchers, is trying to build an alternative DSGE. It will be microfounded, but will also be based on more realistic consumption functions, investment behavior, asset demand. It is building on the works that are done by others. And there are other projects at work also. I hope some of them will be successful.

If I have to teach undergrads or to explain something to my mother or to my friends, I think using an ISLM with two interest rates plus a Phillips Curve is the best way to talk about most of the issues that are relevant today.

A lot of what happened in the financial crisis is that even if the central bank lowered the policy rate, the rate relevant to investment decisions turned out to be a very different and much higher rate.

So, I think it is very important to have two rates, one determined by the central bank, and another which is relevant for people and firms when they borrow. This is a way to introduce the financial system.

The third change is that I have given up on Aggregate Supply and Demand model (ASAD). It is because ASAD was quite complicated. It is not great from the point of view of being a toy model. Also, ASAD is misleading as it has the very strong message that even if no economic policy is implemented, the economy will return to the equilibrium all by itself.

As I have written in the 5th edition, if there was an adverse shock in the ASAD model, the price level would decrease, then real money supply would increase, this lowered the interest rate, which would have pushed the economy right back to its potential output level.

This mechanism is more or less irrelevant now. Economies do not return to health all by themselves, central banks do not keep the nominal money supply constant.

Against this background, in this edition of showCASE we join a long-lasting debate on the appropriatness and relevance of the EU-wide fiscal rules as well as alternative approaches to public deficit and debt in the EU.

From the onset of the pandemic, there has been a widespread acceptance among economists and governments that to protect households and firms and boost demand in response to the Covid-19 crisis, governments must temporarily accept a large increase in public debt.

The OECD argues that in case the recovery lacks vigor, it might be necessary to continue expansionary fiscal policy for a sustained period to stimulate broader household consumption and business investment. This willingness to increase government spending, with government debt reaching up to 89.8% of GDP in the EU in Q3 2020 (up from 79.3% in the same period the year before), represents a new way of thinking in macroeconomics for some, while being strictly a crisis measure for others. In this edition of showCASE, I will shed light on the ongoing debate on fiscal policy and debt sustainability and will discuss its potential impact on the future of fiscal policy.

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