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Is Macroeconomics Dead? Monetary and Fiscal Policy in Historical Context

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  • Ross Garnaut

Abstract

There was no macroeconomic policy in the classical system of economic thought. Monetary policy was determined without discretion within the Gold Standard, and budget outcomes were guided by a 'balanced budget rule'. Intellectual and policy support for the classical rules evaporated when large shocks upset the classical adjustment mechanisms and led to high and persistent unemployment. For a number of decades after Keynes's general theory, discretionary adjustment of fiscal and monetary policy to maintain balance between supply capacity of the economy and demand replaced the classical rules. This has now, in turn, been replaced by a variation on the classical theme. A 'goods and services standard', designed to keep inflation steady and low, a freely floating exchange rate, and a 'small, steady budget surplus' are the elements of the new system in Australia. This has worked well enough in the particular circumstances of the past one and a half decades, but would be vulnerable to a reversal of recent Australian good fortune in its terms of trade. Copyright 2005, Oxford University Press.

Suggested Citation

  • Ross Garnaut, 2005. "Is Macroeconomics Dead? Monetary and Fiscal Policy in Historical Context," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 21(4), pages 524-531, Winter.
    • Handle: RePEc:oup:oxford:v:21:y:2005:i:4:p:524-531
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    Cited by:

    1. Tim Robinson & Tim Atkin & Mark Caputo & Hao Wang, 2017. "Macroeconomic Consequences of Terms of Trade Episodes, Past and Present," Australian Economic History Review, Economic History Society of Australia and New Zealand, vol. 57(3), pages 291-315, November.
    2. Truong Nguyen, 2013. "Estimating India's Fiscal Reaction Function," ASARC Working Papers 2013-05, The Australian National University, Australia South Asia Research Centre.
    3. Allen, Creina & Day, Garth, 2014. "Depletion of non-renewable resources imported by China," China Economic Review, Elsevier, vol. 30(C), pages 235-243.
    4. Christopher Allsopp & David Vines, 2005. "The Macroeconomic Role of Fiscal Policy," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 21(4), pages 485-508, Winter.
    5. Jonathan Kearns & Philip Lowe, 2011. "Australia's Prosperous 2000s: Housing and the Mining Boom," RBA Annual Conference Volume (Discontinued), in: Hugo Gerard & Jonathan Kearns (ed.),The Australian Economy in the 2000s, Reserve Bank of Australia.

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