There is currently an attempt in the United States, which appears largely politically driven, to argue that the fiscal stimulus was ineffective. I will not get into that debate here, except to stress that a key fact to consider when evaluating the effectiveness of fiscal expansion should be the interest rate. If fiscal expansion leads to a substantial rise in interest rates, it is not effective and instead crowds out private spending. If interest rates remain low, as they have so far, there is a good case for saying that it is indeed effective. It is not only fiscal policy that helped, of course. Direct intervention in the financial sector, as well as aggressive monetary easing, were at least as important.

See, for example, Charles R. Nelson and Charles R. Plosser, “Trends and Random Walks in Macroeconomic Time Series: Some Evidence and Implications,” Journal of Monetary Economics, Vol. 10, No. 2 (1982), pp. 139-62; Robert E. Lucas, “Macroeconomic Priorities” (2003 AEA Presidential Address), American Economic Review, Vol. 93, No. 1 (2003), pp. 1-14; Valerie Cerra and Sweta C. Saxena, “Growth Dynamics: The Myth of Economic Recovery,” Working Paper No. 226 (Basel: Bank for International Settlements, 2007); and Valerie Cerra, Ugo Panizza, and Sweta C. Saxena, “International Evidence on Recovery from Recessions,” Working Paper No. 09-183 (Washington, D.C.: International Monetary Fund, 2009).

These are the words used by Federal Reserve Bank of Dallas President Richard Fisher in a speech at the University of California, as reported by Reuters on September 4.

Commisssion on Growth and Development, Post-Crisis Growth in Developing Countries: A Special Report of the Commission on Growth and Development on the Implications of the 2008 Financial Crisis (Washington, D.C.: World Bank, 2009), p. 2.

“[M]acroeconomics … has succeeded: its central problem of depression prevention has been solved.” Robert E. Lucas, “Macroeconomic Priorities” (2003 AEA Presidential Address), American Economic Review, Vol. 93, No. 1 (2003), pp. 1-14.

George A. Akerlof and Robert J. Schiller, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Glohal Capitalism (Princeton, N.J.: Princeton University Press, 2009).

Fred Bergsten and Arvind Subramanian, “America Cannot Resolve Global Imbalances on Its Own,” Financial Times, August 19, 2009.

For this to happen in a big way, the pace of governance reform at the IMF would have to increase.

Latest findings by Thomas Piketty and Emmanuel Saez, cited in “A Long Way Down” (editorial), New York Times, September 16, 2009.

Following the delivery of his prepared remarks, Dr. Dervi§ answered questions from audience members, as typically happens after Per Jacobsson Lectures. Unfortunately, technical difficulties with the equipment used to record the lecture prevent the reproduction of the question-and-answer session here.