Title: A new paradigm for macroeconomic policy

Authors: Philip Arestis, Malcolm Sawyer

Addresses: Cambridge Centre for Economic and Public Policy, Department of Land Economy, University of Cambridge, 19 Silver Street, Cambridge, CB3 9EP, UK; Department of Applied Economics V, Faculty of Economics and Business, University of the Basque Country, Avenida Lehendakari Agirre, 83, 48015 Bilbao, Spain. ' Leeds University Business School, University of Leeds, Leeds, LS2 9JT, UK

Abstract: In this paper we advocate a way of approaching macroeconomic policy, which stands in contrast to the now discredited |new consensus in macroeconomics| policy framework. The five pillars of our approach are: the need for budget deficits to support the level of aggregate demand; full consideration of income distribution and its implications for the level of demand; the interest rate policy pursued by the central bank should aim for a constant real rate of interest with that interest rate broadly in line with the rate of growth; the coordination of economic policies with the implication of an end of central bank independence; and the key policy objective of the central bank should be financial stability.

Keywords: fiscal policy; monetary policy; financial stability; budget deficits; income distribution; macroeconomics; consensuses; new consensus; aggregate demand; demand levels; interest rates; central banks; banking; constant rates; real rates; growth rates; policy coordination; bank independence; public policy; economic policies; alternative paradigms.

DOI: 10.1504/IJPP.2011.039573

International Journal of Public Policy, 2011 Vol.7 No.1/2/3, pp.22 - 39

Published online: 14 Jan 2015 *

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