Monetary and fiscal policy in interwar Britain

David Ronicle

Macroeconomic outcomes in Britain’s interwar years were terrible – they featured two of modern Britain’s worst recessions, unemployment twice peaked above 20% and was rarely below 10% and there were two periods of chronic deflation. Policy, meanwhile, was pulled in multiple directions by multiple objectives – employment, price and financial stability and debt sustainability. These challenges gave birth to modern macroeconomics, inspiring the work of John Maynard Keynes. In a new working paper, I apply modern empirical techniques to look at the period with fresh eyes. I find that monetary and fiscal policy played a central role in macroeconomic developments – and that outcomes could have been better had policymakers been less wedded to the traditional policy consensus, and especially the Gold Standard.

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Covid-19 briefing: post-lockdown macro

Michael Kumhof

In the wake of Covid-19 lockdown, macroeconomic policymakers have to deal not only with the immediate contraction in the economy, but also with the medium and longer term macro-consequences. Over the past four months, the macroeconomic literature on these topics has expanded rapidly. This post reviews the literature that considers the channels via which the shock affects the economy, and the macroeconomic policy options for dealing with the aftermath, taking as given the shock caused by the virus and the lockdown.

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Choosing from a varied toolkit: assessing China’s overall policy stance

Julian Reynolds, James Owen and Bob Gilhooly

This post examines how policy in China supported the Chinese economy prior to the Covid-19 pandemic, drawing on a newly developed toolkit. This topic is particularly important for China, where economic developments have a significant impact on the rest of the global economy, but where assessing the full spectrum of policy – monetary, regulatory and fiscal – is difficult. Policy levers in China have evolved alongside a rapidly changing economy, and there is still some uncertainty surrounding which levers are being pulled – and how hard – at any given point in time. This post attempts to paint a clearer picture of Chinese policy by assessing key policy levers and their effects on growth.

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What are the effects of fiscal policy at the zero lower bound?

R. Anton Braun, Lena Boneva & Yuichiro Waki.

Does fiscal policy have large and qualitatively different effects when the nominal interest rate is zero? An emerging consensus in the New Keynesian literature is that supply-side fiscal stimulus is ineffective at the zero lower bound (ZLB) while demand-side fiscal stimulus is a useful tool to escape a liquidity trap. But new evidence provided in our paper suggests that supply-side fiscal policies can play an important role at the ZLB while the effects of demand-side stimulus may be weaker than previously found.

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