Was macro policy different after 2008? I interpret that to be the question: "Did macro policy follow the same rule after 2008 that people had presumed before 2008 it would follow in a true tail event?" To answer that question requires determining just what policy rule people back before 2008 thought that the U.S. government was following. Let me propose four candidates for our (implicit) pre-2008 macroeconomic policy rule:
- Limit fiscal policy to automatic stabilizers, and follow a Taylor rule with John Taylor's coefficients (Taylor).
- Follow Milton Friedman's advice and target velocity-adjusted money: if nominal GDP is below trend, print more money and buy bonds; if that does not restore nominal GDP to either the trend level or the trend growth rate (depending on whether your favorite flavor has or does not have base-drift sprinkles), repeat (Friedman).
- Use open market operations to manipulate the short-term safe nominal interest rate to stabilize inflation and unemployment as long as you are not at the zero lower bound. At the zero lower bound credibly promise to be irresponsible in the future in order to raise inflation expectations by enough to push the real interest rate down to its negative Wicksellian neutral rate value, and so restore real macroeconomic balance (Krugman).
- Use open market operations to manipulate the short-term safe nominal interest rate to stabilize inflation and unemployment as long as you are not at the zero lower bound. At the zero lower bound resort to expansionary fiscal policy and do as much of it as needed, at least as long as interest rates on long-term government debt remain low (Blinder).
Were there any other live candidates for "the policy rule" back before 2008?