The writer is a former central banker and a professor of finance at the University of Chicago’s Booth School of BusinessMacroeconomic policy in industrial countries has become much more discretionary of late, and not necessarily in a good way. When sensible, it is focused on the long term, and moves to stabilise the economic cycle rather than accentuate it. So the government should shrink deficits when the economy is doing well, even as monetary policy gets tighter, and the opposite should happen when the economy is doing poorly. One benefit of pulling back policy stimulus in boom times is that it preserves the capacity to intervene in downturns.

However, few politicians like to cut back when the economy is doing well, and central bankers might be unwilling to incur public ire by raising rates just as the party gets going. Countries with dysfunctional politics are particularly prone to overspending and contractionary policies set in only when there are no other alternatives.

Recognising the folly of such cycle-accentuating policies, many industrial countries previously adopted self-constraining guardrails such as inflation-targeting frameworks for the central bank, deficit rules and debt brakes for the government, and so on. Over time, as they saw economic volatility in industrial countries moderate, a number of emerging markets got religion and adopted these guardrails.