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Caruana and Greenspan about stocks and shocks

Jaime Caruana, the general manager of the Bank for International Settlements, and the former boss of the Bank of Spain, gave an important speech Friday, which, among other things, highlights the radically different frameworks economists use to evaluate what’s going on.

In textbook macro models, economies grow at some “trend” rate based on productivity on population growth, except when occasionally buffeted by “shocks” in different directions such as an oil price spike or a tax cut — shocks that fade in importance over time as economies “naturally” return to their “trend”.

In these models, policymakers should focus on boosting productivity, which improves the trend path, and establishing institutions that smooth out the impact of the shocks when they occur by temporarily shifting resources to those most affected.

Little else matters.

Alan Greenspan argued in The Age of Turbulence that “in a market economy, rising debt goes hand in hand with progress” (page 346 of 2008 paperback). He went on (pages 359-360):

Matthew C Klein, FT Alphaville 5 Feb 2016

Ambrose about the same speech

Greenspan at IntCom

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