U.S. Monetary Policy: Avoiding Dark Corners


By Ali Alichi, Douglas Laxton, Jarkko Turunen, and Hou Wang

Copyright : © fStop Images GmbH / AlamyA few weeks ago, the Fund suggested that the Federal Reserve could defer its first increase in the policy rate until it sees greater signs of wage or price inflation, with a gradual increase in the federal funds rate thereafter. Such a monetary policy strategy could help avoid the “dark corners” in which, as Olivier Blanchard has argued, small shocks can have potentially large effects. In this blog and accompanying working paper, we expand upon this idea. We also outline the potential benefits of an expanded communications toolkit.

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Inequality’s Toll on Growth


by iMFdirect

Inequality is one of the defining issues of our time, so you may want to tune in to this interview with the authors of a new study that shows that  higher inequality leads to lower growth.  You can also read their blog here.

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Growth’s Secret Weapon: The Poor and the Middle Class


By Era Dabla-Norris, Kalpana Kochhar, and Evridiki Tsounta

(Versions in  Español中文 日本語عربي,and Русский)

The gap between the rich and the poor is at its widest in decades in advanced countries, and inequality is also rising in major emerging markets (Chart 1).  It is becoming increasingly clear that these developments have profound economic implications.

SPR Inequality SDN.chart 1rev

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Greece: A Credible Deal Will Require Difficult Decisions By All Sides


blanchBy Olivier Blanchard

(Versions in 中文Françaisελληνικά, عربي, and Español)

The status of negotiations between Greece and its official creditors – the European Commission, the ECB and the IMF – dominated headlines last week.  At the core of the negotiations is a simple question: How much of an adjustment has to be made by Greece, how much has to be made by its official creditors?

In the program agreed in 2012 by Greece with its European partners, the answer was:   Greece was to generate enough of a primary surplus to limit its indebtedness.  It also agreed to a number of reforms which should lead to higher growth.  In consideration, and subject to Greek implementation of the program, European creditors were to provide the needed financing, and provide debt relief if debt exceeded 120% by the end of the decade.

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Cross-Country Analysis of Housing Finance and Real Estate Booms


By Eugenio Cerutti, Jihad Dagher, and Giovanni Dell’Ariccia

Housing finance—considered one of the villains of the recent global financial crisis—was seen, at least until recently, as a vehicle for economic growth and social stability.  Broader access to housing finance promotes home ownership, especially for younger and poorer households; which in turn is often linked to social stability, and ultimately economic growth.

But real-estate boom episodes have often ended in busts with dire economic consequences, especially when the boom was financed through fast credit growth.  Several countries have seen these boom-bust patterns over the last decade, particularly in some of the hardest hit countries during the global financial crises, such as Ireland, Spain, and the United States. Despite having different mortgage market structures, these three countries saw an astonishing increase in house prices and construction on the back of risky lending which was followed by a painful adjustment period—a mortgage credit boom gone bad.

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Raising Long-Run Growth in Latin America and the Caribbean—A Complex(ity) Issue


By Fabiano Rodrigues Bastos and Ke Wang

(Versions in Español and Português)

Growth in Latin America and the Caribbean has weakened significantly over the last few years. Part of this weakness appears to be here to stay, and IMF economists have marked down medium-term growth projections. This story sounds eerily familiar, given the region’s past difficulties to improve its comparative growth performance.

Abstracting from the “golden decade” from 2003 to 2011, when rising commodity prices powered a strong expansion, why has the region been unable to sustain sufficiently high growth rates to catch up with more advanced economies? Part of the answer is Latin America’s modest success in branching out into more sophisticated—or complex—goods.

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A Watershed Moment for Latin America: Nine Takeaways from our High-Level Conference


Alejandro WernerBy Alejandro Werner

(Versions in Español and Português)

Latin America has reached a critical moment. So much better off than two decades ago, and still facing deep-seated problems that get in the way of sustained strong growth and economic development. To better understand these problems from countries’ perspectives, and explore ways the IMF and others can help address them, we brought together experts from the region and beyond—central bankers, finance ministers, and academics—for a high-level conference in Washington, D.C. earlier this week.

Under the theme of “Rising Challenges to Growth and Stability,” participants engaged in lively debates about the current difficulties facing Latin America and the policy priorities for now and the future.

Here are my main takeaways from the event:

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