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  • FITZGERALD: I'm Deborah Fitzgerald.

  • I'm the dean of the School of Humanities, Arts and Social

  • Sciences here at MIT.

  • And it is my pleasure to welcome you to the afternoon session.

  • I want to say how delighted I am that our school is

  • one of the co-hosts of this terrific event.

  • And before I say more, I want to just make

  • a couple of thank-yous, first of all to David Mindell

  • and to the 150th Committee, who have conceived

  • of the idea of having these six symposia to highlight

  • the scholarly and really practical

  • aspects of research and education

  • at MIT over the last 150 years.

  • They've done a fantastic job, and I thank them very much.

  • I want to thank also Jim Poterba for his remarkable

  • organizational skills, his sense of humor,

  • his powers of persuasion-- which many of you

  • have experienced-- his sense of humor, and his grace.

  • He has really been the mind behind this,

  • and he's just done a fabulous job as well.

  • Economics is one of 10 departments

  • in the School of Humanities, Arts, and Social Sciences.

  • It is the largest department.

  • It has the most faculty.

  • It has the largest undergraduate majors.

  • And it has the largest number of graduate students.

  • It also has the most Nobel Prize winners

  • of all of the departments in my school, oddly enough.

  • All 10 departments in the School are

  • dedicated to the education of MIT students.

  • Each student at MIT-- each undergraduate--

  • is required to take eight classes in these fields,

  • humanities, arts, and social sciences,

  • which is quite high by peer standards.

  • And so we see a lot of undergraduates in our school.

  • From all fields across the board,

  • MIT undergraduates tend to gravitate

  • to the Economics Department, drawn

  • by its illustrious faculty as well

  • as by the rigor of the classes that they encounter.

  • MIT students, in my experience, tend

  • to scoff at material that is not very difficult.

  • And they find in economics a more than adequate challenge

  • to their considerable abilities.

  • I want to note too that there are a lot of MIT undergraduates

  • and graduate students in the audience today.

  • And I'm really delighted that you were able to join us.

  • Today we're honoring not only the economics

  • field and the Economics Department

  • but also, as this program indicates--

  • as you see the graduation dates of many of the speakers--

  • we're also honoring the extraordinary students who have

  • graduated from this department.

  • Like their faculty mentors, these graduates

  • have exerted an impact on the profession

  • and on the world that is really, I

  • think, unmatched, transforming the domains of scholarship,

  • of policy, and of business all over the world.

  • As this symposium makes clear, while there's

  • a lot to celebrate today in the world of economics,

  • there do remain many challenges in this sphere.

  • And these are challenges that I believe MIT intends to meet.

  • So again, I want to welcome you to the symposium.

  • And I will now turn things over to Ricardo Caballero.

  • Thank you.

  • [APPLAUSE]

  • CABALLERO: Thank you, Deborah.

  • The afternoon is slightly different from the morning.

  • The idea is to discuss policy challenges.

  • And the first of the two panels will

  • be about macroeconomic policy.

  • The timing of this panel, weather aside,

  • couldn't be better, no?

  • The developed world is still struggling

  • with the aftershocks of an extremely severe

  • financial crisis.

  • In the US, the debate is whether stimulus is still needed

  • or whether the time has arrived to shift

  • the focus to long-term sustainability issues.

  • In Europe, the risks run deeper, and even the future

  • of the euro itself is sometimes doubted by markets--

  • not by the IMF, but by markets, certainly.

  • These realities of the developed world contrast sharply

  • with those of emerging markets in China and India

  • in particular, where output gaps have closed

  • and inflation and overheating concerns have reemerged.

  • To illuminate us on these decoupling

  • issues and other fascinating macroeconomic policy issues,

  • we have assembled a superb panel.

  • They have in common to be world-renowned academics

  • and policy makers, and to be also graduates

  • from the best economics PhD program in the world.

  • They need no introduction.

  • They'll speak in almost nearly alphabetical order.

  • Olivier Blanchard will first give us a global perspective.

  • And then we'll get into specific issues--

  • emerging markets-- by Pedro Aspe, PhD '68.

  • Do I have it right, Pedro?

  • ASPE: '78.

  • CABALLERO: '78.

  • Oops, sorry.

  • I knew something was wrong.

  • I knew something was wrong.

  • And Olivier was PhD '77.

  • Then Bob Gordon, who is replacing Alan Blinder,

  • is a PhD '67.

  • Paul Krugman, who is not here but should be online,

  • is a PhD '77.

  • Greg Mankiw, PhD '84, and Christina Romer, PhD '85.

  • So without further ado, Olivier, the world is yours.

  • BLANCHARD: I wish.

  • [APPLAUSE]

  • Good.

  • Let me first say how happy I am to be back here,

  • if only for one day.

  • It's a very special feeling.

  • Given my current job, as most of you--

  • I've been the chief economist at the IMF

  • now for two years and a half.

  • I was asked to give you a sense of the global landscape.

  • And that's particularly easy for me to do at this point

  • because two days ago, we published the World Economic

  • Outlook update.

  • So I still remember the numbers, which

  • I will have forgotten probably by next week.

  • So the headline, if it has to be short,

  • is the global economic recovery continues.

  • And on the surface, the numbers actually look quite good.

  • For example, global growth, growth for the world economy,

  • is forecast to be at 4.5% this year,

  • 2011, which is a fairly high number.

  • But below the headline, the reality is quite different.

  • The global number is a bit misleading.

  • What we have is what we have called,

  • and many others as well, a two-speed recovery,

  • depending on where you are in the world.

  • If you look at emerging market countries,

  • and I'm sure Pedro will say much more about this,

  • then they are doing very well.

  • The growth rate that we forecast for 2011

  • is 6.5% for the group of emerging and developing

  • economies.

  • And as you know, if you go, for example, to China,

  • the forecast is now of 10%.

  • If you go to India, the forecast is of 9%.

  • Now, it's not only that.

  • It is that this is a statement about the growth

  • rate, the rate at which countries' GDP goes up.

  • But there's also the question of how close we are to potential

  • and why, in the crisis, they went away from potential.

  • Output was lower than potential.

  • They are now, for many of them, not all-- for example,

  • not Mexico yet.

  • But for many of them, they are basically

  • back very close to potential.

  • And some of them seem to be crossing the line

  • at fairly high speed, so that the challenge

  • for these countries is really just to limit overheating,

  • slow down so as to maintain growth

  • which is consistent with what they can do.

  • In the medium term, their challenges

  • are going to be how to limit inflation, asset price

  • bubbles, and so on.

  • Now, if you turn to the advanced countries,

  • there the picture is much worse.

  • The growth rate for the set of advanced countries for 2011

  • is 2.5%.

  • That was actually one of the themes in Davos yesterday.

  • I was not in Davos, but I read the newspaper.

  • It was that within that 2.5%, there are actually two numbers.

  • There's the US, which is growing at 3%.

  • And there's the Euro Zone, which is expected to grow at 1.5%.

  • These are very low numbers.

  • And again, these are not only low numbers.