Early last year, Blanchard, IMF´s Chief-Economist, was strongly proposing higher inflation targets. Almost a couple of years later he completely eschews monetary policy, only obliquely mentioning the need for “liquidity provision”:
Put these four factors together, and you can explain why the year ends much worse than it started.
Is all hope lost? No, but putting the recovery back on track will be harder than it was a year ago. It will take credible but realistic fiscal consolidation plans. It will take liquidity provision to avoid multiple equilibria. It will take plans that are not only announced, but implemented. And it will take much more effective collaboration among all involved.
I am hopeful it will happen. The alternative is just too unattractive.
I wonder if his slip has anything to do with the position of the ECB on being a LOLR.