Stabilisation policy should focus on the frequencies consumers care most about. This column presents evidence from stock-market returns suggesting that consumers are willing to pay the most to avoid – and are therefore most concerned about – fluctuations that last tens or hundreds of years. Modern macroeconomic theory tends to view the role of monetary policy as smoothing out inflation and unemployment over the business cycle. The authors’ findings suggest that resources would be better spent on policies that smooth out longer-run fluctuations.
Ronald Mendoza, 10 January 2009
Adverse shocks to poor households can cause significant long-term damage to their well being. This column argues that stabilisation policies ought to make protecting vulnerable families and children from shocks a central priority rather than ad hoc and ancillary in development strategies. Countries’ future economic growth and human development are at stake.
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