Conversations with Visiting Scholars

• Author: Prakash Loungani
• Pages: 6-7

6

Loungani: Congratu lations on your selection as an IMF

Fellow. Is this your rst stint at a polic y institution?

Coibion: ank s, I’m thrille d to be here! I worked for a

year at the CEA (U.S. Counci l of Economic Advisers) in

2000– 01. It gave me an enduring sense of how economic

theory and empirica l methods can help address policy ques-

tions and make a dierence i n people’s lives. And because I

happened to be there during the t ransition from the Clinton

to the Bush admini stration, it was fascinating to see the

change in style and pers onalities—and in the dress code. e

suits got much more sober and I even had to start wea ring a

tie once the Bush admin istration was in place.

Loungani: Dress is casu al at the IMF over the summer. You

will see t he suits out in full force in the fall. W hat will you

work on during your year here?

Coibion: I’ll c ontinue some of my work on inequal-

ity. One project will look at link s between inequality and

nancial cri ses, which folks at the IMF have also stud ied.

I’ve also been studying t he impact of monetary policy on

inequality—who gain s, who loses when the Fed changes

its policy. is gets debated in polic y circles a lot, but not

much in academia. Ron Paul says that e xpansionary mon-

etary policies , or debasing the currency as he always puts

it, raises income inequa lity; people on the le like Jamie

Galbraith say the opposite.

Loungani: What do you nd?

Coibion: Expan sionary monetary policy has ty pically

reduced U.S. inequality i n the short run. is suggests t hat

when the central ban k can’t cut interest rates any more—

when rates hit the so-ca lled “zero lower bound,” as is the

case at present—inequality w ill be higher than it would be

otherwise. To avoid these additional incre ases in inequality

at a time of crisis, the govern ment should use other tools,

such as targeted sca l policies. I hope to do some more work

on this while I’m here. More generally, I’ll be st udying how

best to sequence scal a nd monetary policies when the mul-

tipliers—the impact of the pol icies on the economy—associ-

ated with each may var y with the state of the economy.

Loungani: Do you thin k the Fed has done enough to pro-

mote recovery?

Coibion: I thin k the zero lower bound [on interest rates]

has certain ly limited the size of their response. ey wou ld

be lowering rates furt her if they could. But as the IMF’s lat-

est review of the U.S. economy noted, the Fed sti ll has a few

options to further suppor t economic activity, given the weak

Conversations with Visiting Scholars

Prakash Loungani Interviews IMF Fellow Olivier Coibion

IMF Research Bulletin

IMF, 2011, World Economic Outlook: April 2011 (Washington:

International Monetary Fund).

Mercado, Rogelio, and Cyn-Young Park, 2011, “What Drives

Different Types of Capital Flow and Their Volatilities in

Developing Asia?” International Economic Journal, Vol. 25

(4), pp. 655-680.

Ostry, Jonathan, Atish Ghosh, Karl Habermeier, Luc Laeven,

Marcos Chamon, Mahvash Qureshi, and Annamaria

Kokenyne, “Managing Capital Inflows: What Tools to

Use?” IMF Staff Discussion Note 11/06 (Washington:

International Monetary Fund).

Papaioannou, Elias, 2009, “What Drives International Financial

Flows? Politics, Institutions and Other Determinants,”

Journal of Development Economics, Vol. 88 (2), pp. 269-281.

Reinhart, Carmen, and Vincent Reinhart, 2008, “Capital Flow

Bonanzas: An Encompassing View of the Past and Present,”

NBER Working Paper 14321 (Cambridge, Massachusetts:

National Bureau of Economic Research).

Surges in Capital Flows: Why History Repeats Itself

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