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Olivier Blanchard

What Olivier Blanchard thinks about interest rates

@olivier-blanchard · 24 positions · 1 change of mind

Economist; former chief economist of the International Monetary Fund.

Everything they publish, on ppll ↗

Olivier Blanchard did not write this page.

We collected these quotes from things they published elsewhere, and every quote links to where it was said. They have no account here and have not endorsed this site. Quotes are word for word; the short line under each one is our own restatement, not their wording. Their own site. Is this you? Claim it or ask us to remove it. Or tell us what is wrong here.

15 dated positions, 2019 to 2023, in their own words. Our reading of what Olivier Blanchard has said — not written or endorsed by them.

  1. Our readingThe sharp steepening of the long end of the yield curve in 2023 was not predicted by economists, including forecasters who had modelled persistently low safe rates.

    Their wordsIt is fair to say that, while economists expected the short end of the yield curve to reflect the higher rates needed to win the fight against inflation, the sharply steeper long end of the yield curve in the last few months has come as a surprise. I shall freely admit that I did not predict it.

    ↗If markets are right about long real rates, public debt ratios will increase for some timepiie.com

    inflationeconomists

    Interesting

  3. Our reading · no longer heldWhen safe interest rates are expected to remain below growth rates for a long time, rolling over public debt without later tax increases is feasible and public debt may carry no fiscal cost.

    No longer holdsAcross advanced economies, the celebrated ( r - g ), i.e., the difference between the interest rate and the growth rate, appears to have durably changed sign or, at a minimum, to have gone from a substantially negative number to a number closer to zero.

    SaidAcross advanced economies, the celebrated ( r - g ), i.e., the difference between the interest rate and the growth rate, appears to have durably changed sign or, at a minimum, to have gone from a substantially negative number to a number closer to zero.

    ↗If markets are right about long real rates, public debt ratios will increase for some timepiie.com

    public debt

    Interesting
  4. 17 months earlier

  5. Our readingLow interest rates reflect underlying fundamental economic factors rather than central bank policy choices.

    Their wordsIn other words, central banks are not to blame for low rates: these low rates just reflect underlying fundamental factors.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 2nd of 22 in this piece

    Interesting

  7. Our readingA persistently low safe interest rate signals that capital is not very productive at the margin, an underlying economic problem rather than a policy variable.

    Their wordsA low r is actually a signal that something is wrong with the economy: In effect, if we think of the safe rate as the risk-adjusted rate of return on capital, the low safe rate is sending the signal that, risk adjusted, the return on capital is low.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 3rd of 22 in this piece

    Interesting

  9. Our readingThere is no tight relation between growth rates and interest rates, either theoretically or empirically.

    Their wordswhile the growth rate may well affect saving and investment, there is no tight relation between growth rates and interest rates, either on theoretical or empirical grounds.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 4th of 22 in this piece

    Interesting

  11. Our readingThe decades-long decline in real interest rates across major economies was not caused by the Global Financial Crisis or the Covid crisis.

    Their wordsReal interest rates have steadily declined in all major economies for more than three decades. This decline was not caused by the Global Financial Crisis or the Covid crisis.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 5th of 22 in this piece

    Interesting

  13. Our readingA longer average debt maturity protects a government from temporary interest-rate spikes and gives it more time to adjust to permanent rate increases.

    Their wordsA longer maturity of debt protects the government from a temporary increase in the short run interest rate, and it gives it more time to adjust to a permanent increase.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 7th of 22 in this piece

    government

    Interesting

  15. Our readingThere is no universal debt-to-GDP threshold beyond which government debt becomes unsustainable; sustainability depends on factors like the real interest rate.

    Their wordsThe analysis in this chapter has shown that there is no such thing as a universal threshold over which debt becomes unsustainable, and that the relevant debt level depends on many factors, in particular the real interest rate on debt.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 11th of 22 in this piece

    government

    Interesting

  17. Our readingA central bank can eliminate a self-fulfilling ('sunspot') debt crisis simply by credibly committing to buy as many bonds as needed at the low interest rate.

    Their wordsThis is precisely the role the central bank can play. By announcing that it stands ready to buy the bonds that investors want to sell at the price associated with the low interest rate, and credibly indicating that it has deep enough pockets to buy whatever is needed, it can eliminate the bad equilibrium.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 12th of 22 in this piece

    investing

    Interesting

  19. Our readingCentral bank purchases of government bonds are not bailouts and do not automatically cause inflation, since they only change the composition of the consolidated government's liabilities, not their total.

    Their wordsGovernments have not been bailed out by their central banks. As I discussed earlier, central bank intervention does not reduce the overall liabilities of the consolidated government, just their composition. And it does not automatically lead to more inflation: It increases the size of the balance sheet of the central bank, but it does not increase the size of the non-interest-paying money stock.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 13th of 22 in this piece

    inflationgovernment

    Interesting

  21. Our readingCanceling government bonds held by a central bank creates no fiscal space, because the reduction in government interest payments is exactly offset by an equal reduction in the profits the central bank remits to the government.

    Their wordsThe proposition is that the cancellation of the bonds held by the central bank would decrease the amount of interest payments and thus the debt service of governments. And indeed, it would. But it would have another effect—namely, to decrease the revenues of the central bank and thus the profits that the central bank turns in to the government. This second effect would be exactly of the same size as the first, and the net effect on the government budget constraint would be equal to zero.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 14th of 22 in this piece

    government

    Interesting

  23. Our readingA fiscal expansion when the economy is already at potential output prompts monetary tightening that dampens or eliminates its effect on output.

    Their wordsIf a fiscal expansion takes place when output is already at potential, monetary policy is likely to tighten, leading to higher interest rates and thus a smaller effect or even no effect of the fiscal expansion on output.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 17th of 22 in this piece

    Interesting

  25. Our readingThe lower a country's neutral interest rate, the smaller the fiscal and welfare costs of public debt and the larger its welfare benefits.

    Their wordsThe lower the neutral rate, the smaller the fiscal and welfare costs and the larger the welfare benefits of debt and deficits.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 19th of 22 in this piece

    public debt

    Interesting

  27. Our readingJudging by output kept near potential despite weak private demand, Japan's decades of high debt and low inflation reflect a qualified policy success, not failure.

    Their wordsJapanese macroeconomic policy is often characterized as a failure, with the central bank unable to achieve its inflation target, a low growth rate, and debt ratios steadily rising to reach more than 170% for net debt and 250% for gross debt. I think it should be seen instead as a qualified success, with the use of aggressive fiscal and monetary policies to compensate for very weak private demand: Output has remained close to potential.

    ↗Fiscal Policy under Low Interest Ratesdirect.mit.edu 20th of 22 in this piece

    inflationJapan

    Interesting
  28. 3 years earlier

  29. Our readingWhen safe interest rates are expected to remain below growth rates for a long time, rolling over public debt without later tax increases is feasible and public debt may carry no fiscal cost.

    Their wordsIf the future is like the past, this implies that debt rollovers—that is, the issuance of debt without a subsequent increase in taxes—may well be feasible. Put bluntly, public debt may have no fiscal cost.

    ↗Public Debt and Low Interest Rates (PIIE Working Paper 19-4)piie.com

    public debt

    Interesting