Economic and Political Determinants of Policy Responses to Crises

In the wake of the recent financial crisis, mainstream macroeconomic theory has been under attack, and prior well-established theories have been questioned. The broad consensus which had emerged over the last twenty years among macroeconomists on optimal macro policies, such the Taylor rule for interest rates and fix rules for fiscal policy, appears inadequate. The role that policy responses had in determining the dynamics of output following the crisis is still an open question. Despite some similarities, the response in terms of both fiscal and monetary policy differed across countries. This project organizes a systematic database on policies implemented in response to crises to determine whether it is possible to identify some regularity in the policy response associated with ideological elements characterizing governments. The project also analyzes the impact of different sequences of macroeconomic and financial policies on the transition of an economy from recession to expansion after a financial crisis.