While it appears that Quantitative Easing has reached its limits and the FED intends to implement a strategy of gradual exit, there is less clear what available options exist for stimulating the economy.
While much of the debate has centered on growth prospects of the US economy in the aftermath of the crisis, a slightly overlooked issue is how the potential output has been affected by the crisis.
The monetary policy has been preferred to fiscal policy to fight the recession, at least for United States. While Quantitative Easing has been recurrently applied in many episodes, from QE1 to the more recent QE4, there has been less attention paid to the possible uses of fiscal policy.
The Fed has recently announced that it will renounce to Quantitative Easing policy. Alan Blinder has a very interesting material that explains pretty well the rationales for why has the FED chosen this approach, how was implemented and what are the exit strategies.
If you read opinions like the one by James Bullard (current president of the Federal Reserve of St. Louis), you might think that Quantitative Easing has been a succes and it has shown how monetary policy can be effective even when the interest rate is near zero.
The literature on exchange rate forecasting and the out of sample evaluation has basically started with the work by Meese and Rogoff (1983). They were the first to show that the basic random walk model outperforms other economic models of exchange rate in terms of forecasting.
To many, this is not news. However, given the persistence of IMF and other international institutions to insist with new austerity measures, it is still surprising.
Explaining the crises (not all, but many of them) as being liquidity traps is not only a misinterpretation but it also leads to false solutions. Just look at the case of Japan after two decades of “policy experiments”. (New) Keynesians like Krugman have reduced its stagnation problem to a liquidity trap and prescribed a wrong therapy which in the end failed to lead to real economic growth. But probably the case of Japan deserves a separate discussion.
The last global recession raised concerns about the ability of macroeconomists to predict crises of such magnitude. Certainly, the forecasting is not the main focus of macroeconomics. I would say that, at least nowadays, it is of rather marginal interest to academic macroeconomists. A proof in this sense is provided by the very low number of publications related to macroeconomic forecasting.