“The intuition behind some of Stiglitz’s arguments about rigid prices is simple. Threatening workers with the loss of their job will have no effect if they can immediately find another”
without regard to the fact that their efficacy may depend on context.
Stiglitz’s work reminds us of the risk of basing polices on the assumption that interest rates rise and fall smoothly. Instead of relying on rules of thumb about when to raise or lower rates, we need to do some creative, analytical thinking. In emerging economies in particular, there is a strong need for experimental interventions to collect data so that we can move to more scientifically based policymaking.
In the late 1990s, I worked with Stiglitz at the World Bank, where he served as Chief Economist. At the time, he was engaged in heated debates about International Monetary Fund interventions in East Asia. In that role, I can honestly say that he changed the IMF. One hopes that his insights continue to have such an impact, as they encourage more analytical policymaking at all levels.