Olivier Blanchard
Economist; former chief economist of the International Monetary Fund.
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What they believe
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The 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.
It 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.
piie.comSaid 6 Nov 2023This on korrents
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Changed their mind When 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.
Before If 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.
Now Across 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.
Said 6 Nov 2023This on korrents
The bold line is korrents’ wording; the quote is theirs. These one: what they wrote before what they said aloud, one per source, newest first.
Beliefs
Korrents What they believe 24 beliefs, 1 changed mind — each backed by an exact quote.
Each is a — compiled by korrents.com, not by them: the one-line wordings are korrents', the quotes are theirs.
Recent
The 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.
It 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 time Said 6 Nov 2023
With r-g near zero, any advanced economy running a primary deficit will see its debt-to-GDP ratio rise once existing debt is refinanced at current rates.
Thus, once current debt has been refinanced and the average interest on debt reflects the higher long rates, absent changes in policy, debt ratios will increase.
If markets are right about long real rates, public debt ratios will increase for some time Said 6 Nov 2023
The main obstacle to sound fiscal policy debate is a widespread, quasi-religious belief that public debt is inherently bad.
The main challenge in discussing fiscal policy is the widely held and nearly religious belief that public debt is very bad.
Fiscal Policy under Low Interest Rates Said 1 Jun 2022
Show 21 more
Low interest rates reflect underlying fundamental economic factors rather than central bank policy choices.
In other words, central banks are not to blame for low rates: these low rates just reflect underlying fundamental factors.
Fiscal Policy under Low Interest Rates Said 1 Jun 2022
A persistently low safe interest rate signals that capital is not very productive at the margin, an underlying economic problem rather than a policy variable.
A 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 Rates Said 1 Jun 2022
There is no tight relation between growth rates and interest rates, either theoretically or empirically.
while 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 Rates Said 1 Jun 2022
The decades-long decline in real interest rates across major economies was not caused by the Global Financial Crisis or the Covid crisis.
Real 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 Rates Said 1 Jun 2022
Sovereign debt markets can suffer sudden stops in investor demand even without material changes in economic fundamentals.
Sovereign debt markets (and many other markets as well) are subject to sudden stops in which investors either drop out or ask for large spreads even in the absence of large changes in fundamentals.
Fiscal Policy under Low Interest Rates Said 1 Jun 2022
A longer average debt maturity protects a government from temporary interest-rate spikes and gives it more time to adjust to permanent rate increases.
A 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 Rates Said 1 Jun 2022
Assessing whether government debt is sustainable is as much an art as a science.
assessing debt sustainability is as much art as it is science.
Fiscal Policy under Low Interest Rates Said 1 Jun 2022
Quantitative rules are not a reliable tool for ensuring government debt sustainability.
I am skeptical of the use of quantitative rules to ensure debt sustainability.
Fiscal Policy under Low Interest Rates Said 1 Jun 2022
Public investment cannot be assumed to be automatically financeable by debt merely because it has high social returns.
Thus, as desirable as public investment is, the proposition that it can be automatically financed by debt is wrong.
Fiscal Policy under Low Interest Rates Said 1 Jun 2022
There is no universal debt-to-GDP threshold beyond which government debt becomes unsustainable; sustainability depends on factors like the real interest rate.
The 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 Rates Said 1 Jun 2022
A 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.
This 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 Rates Said 1 Jun 2022
Central 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.
Governments 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 Rates Said 1 Jun 2022
Canceling 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.
The 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 Rates Said 1 Jun 2022
The probability of a self-fulfilling bad equilibrium in sovereign debt markets depends little on the debt level itself, but is much reduced by a rule linking the primary balance to debt service increases.
I have argued that the probability of a bad equilibrium is only marginally influenced by the level of debt, but can be much reduced by a contingent rule making the primary balance react to an increase in debt service.
Fiscal Policy under Low Interest Rates Said 1 Jun 2022
The price level behaves as the aggregate of mostly backward-looking decisions rather than as an asset price, except during hyperinflation, so expected future primary balances barely affect it today.
I believe that, except in times of hyperinflation, the price level does not behave as an asset price but as the aggregate of billions of mostly backward-looking decisions, and that expectations of future primary balances have little effect on the price level today.
Fiscal Policy under Low Interest Rates Said 1 Jun 2022
A fiscal expansion when the economy is already at potential output prompts monetary tightening that dampens or eliminates its effect on output.
If 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 Rates Said 1 Jun 2022
Fiscal multipliers vary across time and place but are generally nonzero, positive for spending, negative for taxes, and larger when monetary policy cannot offset them.
Multipliers are likely to vary a lot over time and space, but the bulk of the evidence is that they are different from zero, positive for spending, negative for taxes, and that they are stronger when monetary policy does not or cannot react to fiscal policy.
Fiscal Policy under Low Interest Rates Said 1 Jun 2022
The lower a country's neutral interest rate, the smaller the fiscal and welfare costs of public debt and the larger its welfare benefits.
The 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 Rates Said 1 Jun 2022
Judging 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.
Japanese 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 Rates Said 1 Jun 2022
During post-2008 fiscal consolidation, the costs of high public debt were overestimated and fiscal multipliers were underestimated, understating the output costs of austerity.
The costs of high debt were perceived to be very high—higher than they truly were—and the multipliers were underestimated, leading to an underestimate of the output costs of fiscal consolidation.
Fiscal Policy under Low Interest Rates Said 1 Jun 2022
Automatic fiscal stabilizers give fiscal policy an advantage over monetary policy in stabilizing output because they act faster.
In some dimensions, fiscal policy has an advantage over monetary policy in stabilizing output. The main example is indeed the operation of automatic stabilizers, which act faster than monetary policy can.
Fiscal Policy under Low Interest Rates Said 1 Jun 2022
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Where they publish
x.com @ojblanchard1 Short notes on debt, rates and fiscal policy; where new work gets flagged.
Short, technical posts on public debt, interest rates and fiscal policy, and the place new papers and op-eds get pointed at. Their longer writing appears on the Peterson Institute's multi-author blog rather than a channel of their own.
Recent
- i do not know dwayne woods, but what he produces is good (and fast). 13 Oct 2026
- The Nobel Prize given to Mike Woodford and Bob Hall will re-trigger discussions about the so-called New Keynesian model. Some will hail it as an unambiguous success, building macro from micro foundations. Others will dismiss it as an empirically irrelevant construction, leading to complex models without much relation to reality. As often is the case, truth is in between. I expressed my views, as a participant in the enterprise, but not an unconditional believer, in an NBER Macro piece last year. Given that the link has expired, I use this opportunity to repost it. 13 Oct 2026 shorturl.at
- A quick reaction. Both well deserving of the prize. Research styles could not be more different. Woodford is a cathedral builder, building stone by stone. His main book is an encyclopedia. Hall is an intellectual butterfly, looking for new angles. His main contribution is a superb insight, which changed the way we think about consumption. It takes both to make a field advance. Congratulations. 12 Oct 2026
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- Marine le Pen s’est mise dans une situation interessante. D’un côté : Promesse de mise en place d’un programme d’ajustement budgetaire, avec ajustement du deficit primaire d’au moins 0.5% du PIB par an. Vérification des hypothèses par le Haut Conseil des Finance Publiques, HCFP. Des contraintes qu’un gouvernement allemand pourrait s’imposer… De l’autre : un programme d'ajustement basé sur des hypothèses et des mesures presque toutes illusoires, qui seraient surement rejetées par le HCFP si elles étaient présentées aujourd’hui, et rejetées demain par le HCFP si elle était elue. Que se passe t’… 7 Oct 2026 Marine le Pen has put herself in an interesting situation. On the one hand: Promise to implement a budget adjustment program, with an adjustment of the primary deficit of at least 0.5% of GDP per year. Verification of assumptions by the High Council for Public Finances, HCFP. Constraints that a German government might impose on itself… On the other hand: an adjustment program based on almost entirely illusory assumptions and measures, which would surely be rejected by the HCFP if they were presented today, and rejected tomorrow by the HCFP if she were elected. What is happening…
- The timing of the paper could unfortunately not be better, given the evolution of the spread on French bonds… The central mechanism in the paper: The strength of the effect of the subjective probability of default on the actual probability of default. The main implication, put roughly: spreads can jump a lot in response to even small bad news about the likely evolution of debt. The other implication, nerdier, and more paradoxical: Higher macro of fiscal uncertainty weakens the effect of the subjective probability on the actual probability and makes jumps and multiple equilibria less likely. @… 6 Oct 2026
- to those who have me on their contact email list: I have been hacked. Do not open an "invite" email from me. With apologies to all 5 Oct 2026
- Arrêtez les âneries (je reste poli) sur les vilains spéculateurs, la dictature des marchés, etc. Les marchés, ce sont les investisseurs, qui décident d’où placer l’argent des épargnants, qu’ils soient francais, américains, ou autres. Si vous avez un peu d’épargne (vous avez un livret A?), il y a une bonne chance que ce soit vous, et que vous préféreriez etre repayés. Autrement dit, a qui pensez-vous que les gouvernements doivent emprunter , sinon aux épargnants? 2 Oct 2026 Stop the nonsense (I'm being polite) about nasty speculators, the dictatorship of the markets, etc. The markets are the investors, who decide where to put savers' money, whether French, American, or other. If you have a little savings (do you have a savings account?), there's a good chance it's you, and that you'd prefer to be repaid. In other words, who do you think governments should borrow from, if not savers?
- Une réaction à chaud et un message a tous ceux qui sont en campagne présidentielle. Ne mettez pas de l’huile sur le feu. Des propositions irresponsables, au cours des dernières semaines, ont fait augmente les taux sur les obligations françaises, de 0.75% par rapport a l’Allemagne. Une augmentation du taux d’interet de 0.75% implique de trouver 20 milliards de plus d’économies ou d’impots supplémentaires pour stabiliser la dette par rapport au PIB. Le budget propose par le gouvernement est loin d’etre parfait. Mais je pense que vous le préférerez à un budget exigé par la BCE pour aider la Fran… 2 Oct 2026 A hot take and a message to all those running for president. Don't add fuel to the fire. Irresponsible proposals in recent weeks have caused French bond yields to rise by 0.75% compared to Germany. A 0.75% increase in interest rates means finding an additional 20 billion in savings or taxes to stabilize debt relative to GDP. The budget proposed by the government is far from perfect. But I think you'll prefer it to a budget demanded by the ECB to help France...
- Reposting a graph, which is unfortunately very relevant for France today. Namely, when it appears that debt may be becoming unsustainable, the interest rate increases first slowly, then suddenly. (The underlying paper comes out this week, and, when it does, I shall tweet more about the actual implications) 2 Oct 2026
- Bad news for the ECB. Great news for the IMF. Hard to think of a more competent person for the IMF finance job. Isabel and I have not always agreed, but I have always learned from our interactions, and she has done an amazing job at the ECB. Her speeches, and especially her slides..., are keepers, remarkable by the quality of the work and the presentation. 25 Sept 2026
- lisez le texte attentivement. Je suis explicite et agnostique sur le fait que l'ajustement peut se faire par les depenses ou les revenus. (J'ai mes propres idees sur la question). Mon argument que la somme doit etre egale a 2700 euros par adulte ne depend pas de ca. 24 Sept 2026 read the text carefully. I am explicit and agnostic about whether the adjustment can be made through spending or income. (I have my own ideas on the matter). My argument that the sum must be equal to 2700 euros per adult does not depend on this.
- Je suis toujours étonné par la violence de certains commentaires. Mon tweet ne faisait que faire de l’arithmétique. A moins de penser que la dette peut augmenter éternellement plus vite que le PIB, if faut a terme réduire le deficit de 150 milliards. Bien sûr, pas en un an, mais disons sur 5 ans. Qui peut etre en desaccord avec ca ? J’étais explicite sur le fait que l’ajustement pouvait se faire par une combinaison d’une diminution des depenses et une augmentation des revenus. Le tweet etait agnostique sur ce point. Chacun a ses opinions…. Je voulais ensuite traduire ce chiffre en un chiffre… 24 Sept 2026 I am always surprised by the violence of some comments. My tweet was just doing arithmetic. Unless you think debt can increase forever faster than GDP, the deficit must eventually be reduced by 150 billion. Of course, not in one year, but let's say over 5 years. Who can disagree with that? I was explicit that the adjustment could be made by a combination of reduced spending and increased revenue. The tweet was agnostic on this point. Everyone has their opinions... I then wanted to translate this figure into a number...
- Un calcul qui donne à réfléchir. La réduction du déficit (que ce soit par une baisse des dépenses ou/et une hausse des recettes) nécessaire pour stabiliser la dette par rapport au PIB : 150 milliards (par exemple, une diminution du deficit de 30 milliards chaque annee par rapport a l'annee precedente, sur un quinquennat). 150 milliards est un chiffre très abstrait. Plus concretement : Il implique un ajustement de 3 750 euros par an par contribuable (foyer fiscal). Si l'on exclut les contribuables qui ne paient pas d'impôt aujourd’hui, il implique un ajustement de 7 500 euros par contribuable.… 24 Sept 2026 A calculation to make you think. The deficit reduction (whether through lower spending or higher revenue) needed to stabilize debt relative to GDP: 150 billion (for example, a decrease in the deficit of 30 billion each year compared to the previous year, over a five-year term). 150 billion is a very abstract figure. More concretely: It implies an adjustment of 3,750 euros per year per taxpayer (tax household). If we exclude taxpayers who do not pay taxes today, it implies an adjustment of 7,500 euros per taxpayer...
- An important and very good speech by @GabrielAttal on Europe: https://t.co/RoVHCMoJ7q If anything, the case for Europe is stronger than ever. It should be at the center of the political campaigns. 21 Sept 2026
- I realize I did not give the link to the full paper on ratings, debt and deficits. Here it is: 19 Sept 2026 imf.org
- Reason for specifically citing open weight (and therefore Chinese LLMs, but not only Chinese) is that, even if they have built-in guardrails, somebody with the relevant knowledge can go in and remove them. In principle, harder to do with Anthropic or Open AI LLMs. 19 Sept 2026
- Ratings largely determine spreads. Yet, their construction remains largely a black box. Our paper assesses the relative importance of debt, deficits and country specific effects in the determination of these ratings. The evidence is at odds with a simple model of default: more importance of debt, less importance of forecast deficits, limited role of r-g, surprisingly large role of country effects. We are agnostic. The model may be too simple in some fundamental ways. Or the rating agencies may be using incorrect weights. Or a mix of the two... We hope the paper triggers a useful discussion. 19 Sept 2026
- A worrisome thought during the night: What Ted Kaczynski would have done, if he had had access to open weight chinese LLMs. 19 Sept 2026
- Let me stay away from personal remarks. As you kindly invited me to do so, I am happy to continue our exchange. Let me start by reproducing and then commenting on three remarks you make in your two recent tweets. “I know full well what justified the use of OATi in 1998, namely a lower interest rate since the investor takes on less risk. Except that today, with the international context and climate disruption making prices more volatile, the cost of these indexed bonds is rising.” My humble view: More volatile inflation makes inflation protected bonds more, not less attractive. “As such, I sta… 14 Sept 2026
- i was going to write something, but Quentin beat me to it... Let me put it another way, so that Chairman Coquerel @ericcoquerel understands and corrects his statement. When a state issues nominal bonds (bonds that pay in euros), the real value of interest payments varies with inflation, creating risk for investors. So they require a higher interest rate to compensate for the risk. In issuing inflation protected bonds, the state eliminates the risk and thus is able to get a lower rate. This decreases the burden of the debt. This is good. Always happy to help the Chair of the Finance Committee… 13 Sept 2026
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