Policymakers in advanced economies find themselves in an unusual fiscal environment: Debt ratios are historically high, and—once the fight against inflation is won—real interest rates will likely be very low again. This combination calls for a rethinking of the role of fiscal and monetary policy—and this is just what Olivier Blanchard proposes in Fiscal Policy under Low Interest Rates.
There is a wide set of opinions about the direction that fiscal policy should take. Some, pointing to high debt levels, make debt reduction an absolute priority. Others, pointing to low future interest rates,…
