But--building on recent remarks I made elsewhere--I will also indicate why policymakers might have good reasons for deviating from these rule benchmarks and why, in pursuing the objectives of monetary policy, they could appropriately behave in ways that are not very well characterized by simple monetary policy rules.
Countries that have run up huge fiscal deficits, either to maintain populist policies or to bail out institutions during the global crisis by guaranteeing failing banks etc., have suddenly found themselves on the verge of bankruptcy unable to honour their obligations and the word “sovereign debt” suddenly ceased to evoke images of a riskless (less risky, at least) asset.