Publications

Giuseppe Fontana

• Working Paper No. 563 | May 2009

  Whither New Consensus Macroeconomics?

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  The Role of Government and Fiscal Policy in Modern Macroeconomics

  In the face of the dramatic economic events of recent months and the inability of academics and policymakers to prevent them, the New Consensus Macroeconomics (NCM) model has been the subject of several criticisms. This paper considers one of the main criticisms lodged against the NCM model, namely, the absence of any essential role for the government and fiscal policy. Given the size of the public sector and the increasing role of fiscal policy in modern economies, this simplifying assumption of the NCM model is difficult to defend. This paper maintains that conventional arguments used to support this controversial assumption—including historical reasons, theoretical propositions, and practical issues—do not have solid foundations. There is, in fact, nothing inherently monetary in the stabilization policies found in the model. Thus, fiscal policy could play a role at least as important as monetary policy in the NCM model.

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  Working Paper No. 563

  Associated Program(s):

  Monetary Policy and Financial Structure Economic Policy for the 21st Century

  Author(s):

  Giuseppe Fontana

  Related Topic(s):

  Fiscal policy Keynesianism Macro modeling New Consensus

  

• Working Paper No. 476 | October 2006

  The “New Consensus” View of Monetary Policy

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  A New Wicksellian Connection?

  One of the greatest achievements of the modern “new consensus” view in macroeconomics is the assertion of a nonquantity theoretic approach to monetary policy. Leading theorists and practitioners of this view have indeed rejected the quantity theory of money, and defended a return to the old Wicksellian idea of eliminating high levels of inflation by adjusting nominal interest rates to changes in the price level. This paper evaluates these recent developments in the theory and practice of monetary policy in terms of two basic questions: 1) What is the monetary policy instrument controlled by the central bank? and 2) Which macroeconomic variables are affected in the short and long run by monetary policy?

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  Working Paper No. 476

  Associated Program:

  Monetary Policy and Financial Structure

  Author(s):

  Giuseppe Fontana

  

• Working Paper No. 430 | November 2005

  Are Long-run Price Stability and Short-run Output Stabilization All That Monetary Policy Can Aim For?

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  A central tenet of the so-called "new consensus" view in macroeconomics is that there is no long-run trade-off between inflation and unemployment. The main policy implication of this principle is that all monetary policy can aim for is (modest) short-run output stabilization and long-run price stability—i.e., monetary policy is neutral with respect to output and employment in the long run. However, research on the different sources of path dependency in the economy suggests that persistent but nevertheless transitory changes in aggregate demand may have a permanent effect on output and employment. If this is the case, then, the way monetary policy is run does have long-run effects on real variables. This paper provides an overview of this research and explores how monetary policy should be implemented once these long-run effects are acknowledged.

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  Working Paper No. 430

  Associated Program:

  Monetary Policy and Financial Structure

  Author(s):

  Giuseppe Fontana Alfonso Palacio-Vera