Asymmetric automatic stabilizers
Martin Eichenbaum argues that automatic stabilizers are associated with important negative effects as well as limited benefits during normal downturns. But the benefits of these stabilizers rise dramatically when the Effective Lower Bound (ELB) is binding. He therefore proposes the adoption of asymmetric automatic stabilizers which will kick in exactly when monetary policy loses its power, i.e. when central bankers announce that the ELB constraint is binding. The asymmetries should end, when policy rates indicate that the ELB is no longer a binding constraint.
Rethinking Fiscal Policy in an Era of Low Interest Rates
Author: Martin S. Eichenbaum
From: Northwestern University
Semiautomatic stabilizers
A fundamental reconsideration of discretionary fiscal policy and automatic stabilizers, such as the one proposed by Martin Eichenbaum, involves deep political choices and challenges. In this paper, Blanchard and Summers propose an alternative, the introduction of “semiautomatic” stabilizers. These stabilizers should be triggered by changes in unemployment rather than changes in output, and their design, whether they focus on mechanisms that rely primarily on income or on intertemporal substitution effects (changing the timing of consumption), should depend on the design of discretionary policy.
Automatic Stabilizers in a Low-Rate Environment
Authors: Olivier Blanchard, Lawrence H. Summers
From: PIIE, Harvard University
