Policy Stability and Economic Growth: Lessons from the Great Recession

113 Pages Posted: 3 Jun 2021

See all articles by Andrew Haldane

Andrew Haldane

Bank of England

Patrick Minford

Cardiff University Business School; Centre for Economic Policy Research (CEPR)

Amar Radia

Bank of England

John B. Taylor

Stanford University; National Bureau of Economic Research (NBER)

Date Written: March 6, 2016

Abstract

The recovery from the recession after the financial crisis, in both the UK and the US, has been very slow compared with other similar events in history. During the period before the financial crash and afterwards, monetary policy deviated from the very effeective rules-based approach of the previous two decades. In 2003-5, there was a huge gap between actual interest rates and the level suggested by the Taylor rule. This was at least partly responsible for the crash and the following slow recovery. Other areas of policy also became erratic. Unconventional monetary policy was followed and there were fiscal stimulus packages with changes in taxes and special subsidies offered to particular types of economic activity. In the US, there has been an enormous increase in the number of federal workers engaged in regulatory activity. Between 2006 and 2012, the number grew from around 180,000 to nearly 240,000 (excluding those employed in national security). In the 1980s, the reverse happened. In the 20 years or so before the run-up to the financial crash, there had been adherence to stable, rules-based policy combined with good economic performance. In the period since, there has been more discretion, and bad results have followed. In order to return to success we need to ensure that ‘the wind of freedom blows’ (in the words of the motto of Stanford University).

Keywords: UK, Britain, US, United States, USA, Great Recession, recession, financial crisis, economic recovery, economic stimulus, monetary policy, government policy, macroeconomics

JEL Classification: E02, E44, E42, E52, E58, E62, F53, F55, F62

Suggested Citation

Haldane, Andrew and Minford, Patrick and Radia, Amar and Taylor, John B., Policy Stability and Economic Growth: Lessons from the Great Recession (March 6, 2016). Available at SSRN: https://ssrn.com/abstract=3852726 or http://dx.doi.org/10.2139/ssrn.3852726

Andrew Haldane

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Patrick Minford

Cardiff University Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom
+44 29 2087 5728 (Phone)
+44 29 2087 4419 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Amar Radia

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

John B. Taylor (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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