In Search of a Smoking Gun: Macroeconomic Policies and the Crisis

Posted: 3 May 2010

See all articles by Hamid Faruqee

Hamid Faruqee

International Monetary Fund (IMF) - Research Department

Alasdair M. Scott

International Monetary Fund (IMF)

Natalia T. Tamirisa

International Monetary Fund (IMF)

Date Written: Winter 2009

Abstract

This paper looks at macroeconomic factors behind the current crisis. The first part looks at how global macroeconomic trends-including sustained strong growth, low real interest rates, and high saving rates-provided an environment conducive to increased financial risk-taking. The second part examines macroeconomic policies and the international monetary system, assessing whether too easy monetary policy contributed to asset price bubbles, whether excessive reserve accumulation contributed to a glut of global savings, whether the US dollar's reserve currency status aggravated financial excesses, and whether policies in capital-importing countries were sufficiently countercyclical. We do not find a single factor that can explain the crisis and account for differences in countries’ experiences leading up to it; instead, the contribution of macroeconomic policy choices seems complex and ambiguous. However, there are still important policy lessons for, in particular, rebalancing economies away from export-dominated growth and having monetary policy place greater weight on macrofinancial stability.

Keywords: financial crisis, asset prices, savings glut, monetary policy, E58, E65, F21, G01

Suggested Citation

Faruqee, Hamid and Scott, Alasdair M. and Tamirisa, Natalia T., In Search of a Smoking Gun: Macroeconomic Policies and the Crisis (Winter 2009). Oxford Review of Economic Policy, Vol. 25, Issue 4, pp. 553-580, 2009, Available at SSRN: https://ssrn.com/abstract=1599064 or http://dx.doi.org/grp037

Hamid Faruqee (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Alasdair M. Scott

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Natalia T. Tamirisa

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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