A blind spot in today's macroeconomics?

Panel remarks by Mr Claudio Borio, Head of the Monetary and Economic Department of the BIS, at the BIS-IMF-OECD Joint Conference on "Weak productivity: the role of financial factors and policies", Paris, 10-11 January 2018.

A standard presumption in today's macroeconomics is that when making sense of first-order macroeconomic outcomes we can treat the economy as if its output were a single good produced by a single firm. This means that issues of resource misallocation can be safely ignored. But the link between resource misallocations and macroeconomic outcomes may well be tighter than we think. This speech illustrates the point with reference to two examples that highlight the link between finance and macroeconomics: the impact of resource misallocations induced by financial booms and busts on productivity growth, and an intriguingly close relationship between the growing incidence of "zombie" firms and declining interest rates since the 1980s.