Challenges Ahead: Managing Spillovers


By Olivier Blanchard, Luc Laeven, and Esteban Vesperoni

The last five years have been a reminder of the importance of interconnections and risks in the global economy. They have triggered intense discussions on the optimal way to combine fiscal, monetary, and financial policies to deal with spillovers, and on the need and the scope for coordination of such policies.

The IMF’s 15th Jacques Polak Annual Research Conference, which took place in Washington DC on November 13 and 14, 2014, focused on Cross-Border Spillovers, and took stock of what we know and do not know.  The summary below picks and chooses some papers, and does not do justice to the full set of papers presented and discussed at the conference.  They can all be downloaded, and videos of each session are available, at www.imf.org/external/np/res/seminars/2014/arc.

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Acting Collectively: A Better Way to Restructure Government Debt


By Sean Hagan 

(version in Español)

To restructure or not to restructure? That is a question few governments would like to face. Yet, if a country does find itself with an unsustainable debt burden, one way or another, it will have to be restructured. And if that time comes, it is better for the debtor, creditors, and the entire financial system that the restructuring be carried out in a prompt, predictable, and orderly manner.

The global financial crisis ushered in a new wave of sovereign debt crises that has reinvigorated discussions over the current framework for sovereign debt restructuring. The experience with Greece’s debt restructuring in 2012 and the ongoing litigation involving Argentina, in particular, provide a salutary reminder that vulnerabilities remain.

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Building a Camaraderie of Central Bankers: How Monetary Policymakers in the Caucasus and Central Asia Can Learn From Each Other


Min ZhuBy Min Zhu

(Versions in 中文Русский)

The world’s central bankers are certainly in the news these days. Not a week goes by without the Fed, the European Central Bank or the Bank of Japan taking big and often unprecedented actions to fight deflation, preserve financial stability, or address mediocre growth. We tend to forget, however, that these are not the only central banks that are struggling to adapt their policies to changing circumstances in our connected world.

Take the Caucasus and Central Asia — Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. Central banking in these former Soviet republics rarely makes international headlines. But figuring out how best to design and run monetary policy is no less a challenge than in the United States or the euro zone.

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Understanding Spillovers


By Olivier Blanchard, Luc Laeven and Esteban Vesperoni

The global crisis—which challenged paradigms about the functioning of financial markets and had significant consequences in other markets—and the sluggish recovery since 2009, are a reminder of the importance of understanding interconnections and risks in the global economy. The increasing trend in global trade, and even more significant, in cross-border financial activities, suggests that spillovers can take many different forms.

The understanding of transmission channels of spillovers has become essential, not only from an academic perspective, but also policymaking. The challenges faced by policy coordination after the initial response to the crisis in 2009—illustrated by the debate on the impact of unconventional monetary policy in emerging economies—raise wide ranging issues on fiscal, monetary, and financial policies.

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Top Five Policy Priorities to Brighten America’s Economic Future


Deniz IganBy Deniz Igan

(version in Español)

There was a time in the not-so-distant past when science fiction could make us look forward to a better world. We had uplifting visions of the future in shows like Star Trek and Back to the Future. Today, the menu of options only offers a dystopian world ruined by poverty and violence (think The Hunger Games, Divergent, or Elysium).

It sure is easy to get pessimistic these days. Six years after the financial crisis, the recovery in the United States has been fragile and weaker than anything we have seen in the post-WWII period. Growth figures, in large part, have been serial disappointments, disrupted by government shutdowns, debt ceiling showdowns, or meteorologically-triggered slowdowns.

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Infrastructure Investment: Part of Africa’s Solution


Antoinette SayehBy Antoinette M. Sayeh

Tremendous efforts are under way to upgrade sub-Saharan Africa’s infrastructure. But the needs on the ground are still immense as evidenced by the frequent electricity blackouts, poor roads, and insufficient access to clean water in many countries.

Infrastructure is one of the key challenges facing policymakers in the region—I experienced it first hand when I was finance minister of Liberia before coming to the IMF. The benefits are fairly clear: with improved infrastructure, new growth opportunities in the manufacturing and services sector can be generated, barriers to intraregional trade can be reduced, and economies will be better positioned to transition from low to higher productivity activities. Without improved infrastructure, I fear the increase in productivity and greater economic diversification necessary to sustain Africa’s current growth momentum will not materialize.

In this spirit, in the latest Regional Economic Outlook: Sub-Saharan Africa economists from the IMF’s African Department looked at progress so far in addressing the infrastructure deficit and discussed policies needed going forward.

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Banks Should Help, Not Hinder the Economy


By Will Kerry and Andrea Maechler 

Banks are struggling to overhaul the way they do business given new realities and new regulations adopted in the aftermath of the global financial crisis. While banks are generally stronger—they have more capital—they are less profitable, as measured by the return on equity. There are a number of reasons behind this, including: anemic net income at banks, particularly in the euro area; higher levels of equity; and banks taking fewer risks.

If they cannot change their business models, there is a risk that banks will not be able to provide enough credit to help the economy grow and recover.

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