Posted on November 19, 2013 by iMFdirect
By Olivier Blanchard
(Version in Español)
Two weeks ago, the IMF organized a major research conference, in honor of Stanley Fischer, on lessons from the crisis. Here is my take. I shall focus on what I see as the lessons for monetary policy, but before I do this, let me mention two other important conclusions.
One, having your macro house in order pays off when there is an (external) crisis. In contrast to previous episodes, wise fiscal policy before this crisis gave emerging market countries the room to pursue countercyclical fiscal policies during the crisis, and this made a substantial difference.
Second, after a financial crisis, it is essential to rapidly clean up and recapitalize the banks. This did not happen in Japan in the 1990s, and was costly. But it did happen in the US in this crisis, and it helped the recovery.
Now let me now turn to monetary policy, and touch on three issues: the implications of the liquidity trap, the provision of liquidity, and the management of capital flows.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Financial Crisis, Fiscal policy, IMF, International Monetary Fund, Multilateral Cooperation | Tagged: capital flows, exchange rate, financial crisis, fiscal policy, IMF Annual Research Conference, IMF Jacques Polak Research Conference, inflation, monetary policy, Olivier Blanchard, Paul Krugman, stanley Fischer | 2 Comments »
Posted on November 12, 2013 by iMFdirect
By Christine Lagarde
(Versions in عربي)
Two days ago, I had the pleasure of visiting Kuwait, a member country of the Gulf Cooperation Council (GCC). It was a whirlwind visit, with many places to see and people to meet, in a thriving corner of the global economy. Kuwait has extended to me its emblematic tradition of hospitality— a testament to its ancient and noble culture. I was awed by the magnificent artifacts of the al-Sabah collection, which I saw in the beautifully restored Dar al-Athar al-Islamiyyah cultural center.
Back to economics. The member countries of the council—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—have some of world’s highest living standards. The region has also become a major destination for foreign workers and a source of remittances for their families back home. And it is a financial center and a hub for international trade and business services.
Filed under: Economic outlook, Emerging Markets, Employment, Finance, Fiscal policy, growth, IMF, International Monetary Fund, Middle East, عربي | Tagged: Bahrain, Christine Lagarde, economic growth, education, GCC, Kuwait, MENA, Middle East, Oman, Qatar, Saudi Arabia, United Arab Emirates | 4 Comments »
Posted on November 6, 2013 by iMFdirect
By Michael Keen
(Version in Español, Français and 中文)
Last night, when you went to bed, you left $40 on the kitchen table. When you woke up this morning, you found only $30—and a note from the government saying, “Thank you very much, we took $10 as a tax payment.” This is, of course, extremely irritating. To an economist, however, it’s close to an ideal form of taxation, since there is nothing you can now do to reduce, avoid, or evade it—the holy grail of what economists call a non-distorting tax.
(This doesn’t mean that you won’t react in some way. Being worse off, you may now work a bit more, or save a bit less. But any other tax raising $1 would make you even worse off, because it would change relative prices (a tax on your earnings would make working less attractive, for instance), and so take your choices even further from those you would make in the absence of taxation.)
Filed under: Economic Crisis, Economic outlook, Economic research, Finance, Financial sector supervision, Fiscal policy, IMF, International Monetary Fund, Politics, Public debt | Tagged: capital levy, debt, Fiscal Monitor, tax cuts, tax policy, taxation | Leave a comment »
Posted on November 1, 2013 by iMFdirect
By Olivier Blanchard
Several years out from the global financial crisis, the world economy is still confronting its painful legacies. Many countries are suffering from lackluster recoveries coupled with high and persistent unemployment. Policymakers are tackling the costs stemming from the crisis, managing the transition from crisis-era policies, and trying to adapt to the associated cross-border spillovers.
Against this background, the IMF’s 14th Jacques Polak Annual Research Conference, entitled “Crises: Yesterday and Today,” to take place on November 7-8, will take stock of our understanding of past and present crises.
This year’s conference will be a special one as we shall honor Stanley Fischer’s many contributions to economic research and policy. Stan has extensively studied economic and financial crises, first as a faculty member at the Massachusetts Institute of Technology, and then as a policymaker with many hats over the years―the Chief Economist of the World Bank, the First Deputy Managing Director of the IMF, and the Governor of the Bank of Israel.
Filed under: Asia, Economic Crisis, Economic outlook, Economic research, Europe, Finance, Fiscal policy, Global Governance, IMF, International Monetary Fund, Latin America, Multilateral Cooperation | Tagged: central banks, East Asia, financial stability, fiscal policy, IMF Annual Research Conference, IMF Jacques Polak Research Conference, interest rates, Japan, Latin America, macroeconomics, Olivier Blanchard, Paul Krugman, stanley Fischer, United States | 2 Comments »
Posted on October 15, 2013 by iMFdirect
By Michael Keen
(Version in Español)
Benjamin Franklin famously said these are the only things that we can be sure will happen to us. Certainly taxation has been much to the fore of public debate in the last few years. The latest Fiscal Monitor takes a close look at where tax systems now stand, and where they might, and should be headed. Can we tax better, could we—if we wanted to—raise more revenue, and how does fairness come into it?
A better way to tax
The IMF’s broad advice on the revenue side of consolidation is straightforward.
- Before raising rates, broaden bases by scaling back exemptions and special treatments, and thereby getting more people and entities to pay taxes;
- Rely more on taxing consumption rather than labor;
- Strengthen property taxes; and
- Seize opportunities to raise revenue while correcting environmental and other distortions by, not least, carbon pricing (to address climate and other pollution challenges).
Filed under: Advanced Economies, Economic research, Emerging Markets, Fiscal policy, IMF, International Monetary Fund, Low-income countries, Public debt | Tagged: fiscal adjustment, Fiscal Monitor, pension, property taxes, tax, tax reform | 1 Comment »
Posted on October 11, 2013 by iMFdirect
By Nemat Shafik
Europe faces a stark choice: risk stagnation or pursue integration. It can continue to muddle through, and hope that growth in the world economy will eventually pick up enough steam to pull its economy out of the doldrums. Or it can make a decisive push to revitalize its economy and complete the reforms needed to achieve a fully integrated economic and monetary union
Five years into the crisis, recovery in the euro area remains fragile. Important actions at both the national and euro-wide levels have tackled the immediate threats to the single currency. These include the European Central Bank’s announcement in 2012 that it stands ready to undertake outright monetary transactions in secondary sovereign bond markets, the completion of the European Stability Mechanism, which created a financial firewall around the euro area, and efforts to restore the health of public finances and implement structural reforms.
Filed under: Advanced Economies, Economic Crisis, Employment, Europe, Finance, Fiscal policy, growth, International Monetary Fund | Tagged: banking union, euro area, Europe, iMFdirect, Nemat Shafik, public finances, structural reforms | Leave a comment »
Posted on October 2, 2013 by iMFdirect
By Erik Oppers
What’s up with weak credit? Five years into the economic crisis credit is still barely growing, and even declining in many advanced economies. Weak credit growth is a major factor holding back the economic recovery and governments have tried every policy they can come up with to jumpstart credit. Still, banks don’t seem to want to lend. Or is it the corporate sector and households that can’t afford to borrow? Many feel these policies are not working. What are policymakers to do?
Our analysis in the most recent Global Financial Stability Report tries to shed light on all this darkness to help countries figure out how to make these policies work. It turns out there is no cookie-cutter solution: the problem differs from country to country and changes over time. For example, in a number of euro area countries, a lackluster demand for loans limited credit growth early in the crisis, but then banks became reluctant to supply more loans as the crisis in Europe intensified in 2012.
Filed under: Advanced Economies, Economic Crisis, Economic research, Emerging Markets, Finance, Financial sector supervision, Fiscal policy, growth, International Monetary Fund, Politics | Tagged: balance sheets, banks, credit, euro area, financial stability, GFSR, Global Financial Stability Report, lending | Leave a comment »
Posted on September 25, 2013 by iMFdirect
By Helge Berger and Justin Tyson
Sooner or later, and one way or the other, government debt in advanced economies will have to come down from the record levels reached in the wake of the global economic and euro area crises. There is no magic number for how much sovereign debt an economy can shoulder. And, as bringing down debt by cutting government spending or raising taxes comes at the risk of reducing growth and employment in the short term, there are arguments to not proceed too hastily. But eventually debt will have to be put back on a downward path in many countries. This will help rebuild fiscal buffers and cope with the costs of aging. So, what should governments do?
Our new analysis takes a closer look at the historical record and key trade-offs. The bottom line: it is possible to reduce debt when growth is low. Ultimately perseverance should pay off.
Filed under: Economic research, Employment, Finance, Financial Crisis, Financial regulation, Financial sector supervision, Fiscal policy, growth, IMF, International Monetary Fund, Public debt | Tagged: debt, euro, Europe, fiscal consolidation, GDP, government budgets, government debt | Leave a comment »
Posted on August 8, 2013 by iMFdirect
By Murtaza Syed
(Version in 中文)
Anticipation of the U.S. Federal Reserve’s exit from quantitative easing has dominated headlines in recent weeks. Half a world away, less conspicuously, but no less importantly, China, the globe’s second largest economy, is designing its own policy adjustments: firstly, unwinding the fiscal and monetary stimulus that helped shield it from the Great Recession and lifted global growth (but which also created some vulnerabilities), and secondly transitioning out of a growth model that has generated spectacular growth over the last three decades, but which is now running out of fuel.
Managed well, these twin adjustments would allow China to prolong its economic miracle in a sustainable way, with a significant positive impact for the rest of the world.
Filed under: Asia, Economic Crisis, Emerging Markets, Employment, Finance, Financial Crisis, Fiscal policy, growth, IMF, International Monetary Fund, Public debt | Tagged: China, credit, interest rate-growth differential, investment, Labor, Murtaza Syed, reform | 5 Comments »
Posted on July 30, 2013 by iMFdirect
By Deniz Igan
(Version in Español)
Much has changed on the fiscal front since we started worrying about U.S. fiscal sustainability. The federal government budget deficit has fallen sharply in recent years―from almost 12 percent of GDP in 2009 to less than 7 percent in 2012. And recent budget reports show that the deficit is shrinking faster than expected only a few months ago, to a projected 4½ percent of GDP for the current fiscal year, which ends September 30. Plus, health care cost growth has slowed down dramatically since the Great Recession, alleviating the pressure on public health care programs at least temporarily.
Does this mean we can stop worrying? Not quite. Recent developments certainly mean that things are better than we thought just a few years ago and the fiscal adjustment needed to restore sustainability is smaller. But if the choice and timing of policy measures is not right, the deficit reduction may turn out to be too much in the short run—stunting the economic recovery—and not enough in the long run.
So, in our recent annual check-up of the U.S. economy, our advice is to slow the pace of fiscal adjustment this year—which would help sustain growth and job creation—but to speed up putting in place a medium-term road map to restore long-run fiscal sustainability.
Filed under: Advanced Economies, Economic Crisis, Economic research, Employment, Finance, Fiscal policy, growth, IMF, International Monetary Fund | Tagged: Article IV, deficits, economic recovery, fiscal sustainability, IMF, iMFdirect, International Monetary Fund, public debt, United States | 3 Comments »