Fiscal Policy And Structural Reform


Vitor GasparBy Vitor Gaspar 

One of the big questions to emerge from the global financial crisis, especially in the euro area, is how to raise a country’s potential growth while restoring healthy public finances. For example, the euro area— despite some favorable news recently — faces marked-down growth prospects alongside high levels of public debt. The combination of high debt and tepid potential growth underscores the importance of improving prospects for sustained growth and safe and resilient public finances. A fundamental question then arises: what is the relation between fiscal consolidation and structural reform?

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Resolving Residential Mortgage Distress: Time to Modify


By Jochen Andritzky

(Versions in Español)

In housing crises, high mortgage debt can feed a vicious circle of falling housing prices and economic slowdown. As a result, more households default on their mortgages and the crisis deepens.  A new IMF Working Paper studies the differences in the housing crises and policy responses in Iceland, Ireland, Spain, and the United States, and argues that crisis policies geared to provide temporary debt service relief for struggling households, followed by durable loan modifications, can help break this vicious circle.

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Canada’s Financial Sector: How to Enhance its Resilience


By Hamid Faruqee and Andrea Pescatori

(Version in Français)

In the aftermath of the 2008 financial crisis, Canada’s financial system held up remarkably well—making it the envy of its Group of Seven peers. This relative resilience was particularly impressive considering its most important trading and financial partner, the United States, was the epicenter of the crisis.

Part of Canada’s success story lies in the fact that its banking system is dominated by a handful of large players who are well capitalized and have safe, conservative, and profitable business models concentrated in mortgage lending—much of it covered by mortgage insurance and backstopped by the federal government. Notwithstanding such an enviable record and sound financial system, we need to keep an eye on certain financial risks.

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Building A Monetary Union in Africa


By iMFdirect

It’s like the European Union but for East Africa.

In this podcast by the IMF, find out how Uganda, Kenya, Tanzania, Rwanda and Burundi stand to benefit from the creation of the East African Community.  There will be a common currency as well as more trade and investment too.  Will a union also expose them to more risk?

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Fiscal Impact of Lower Oil Prices on Latin America and the Caribbean


By Robert Rennhack and Fabián Valencia

(Versions in Español and Português)

The plunge in world oil prices—from $105 to about $50 per barrel since mid-2014—has been a boon for oil-importing countries, while presenting challenges for oil exporters.

In general, oil importers will enjoy faster growth, lower inflation, and stronger external positions, and most will not encounter any significant fiscal pressures. Oil exporters will tend to face slower growth and weaker external current account balances and some will run into fiscal pressures, since many rely on direct oil-related revenues. One country that stands out is Venezuela, which had been experiencing severe economic imbalances before oil prices began to fall and now finds itself in an even more precarious position.

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Investment in the Euro Area: Why Has It Been So Weak?


By Bergljot Bjørnson BarkbuS. Pelin Berkmen, and Hanni Schölermann

Investment in the euro area, and particularly private investment, has not recovered since the onset of the global financial crisis.

In fact, the decline in investment has been much more drastic than in other financial crises; and is more in line with the most severe of these crises (see Chart 1). The October 2014 World Economic Outlook showed that many governments cut investment because their finances became strained during the crisis. In addition, housing investment collapsed in some countries, reflecting a natural scaling back after an unsustainable boom. But what is holding back private non-residential investment?

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Warning—Falling (U.S. Treasury) Objects


By Nigel Chalk and Jarkko Turunen

WHD.US Falling Yields.warningsignThe remarkable collapse in the price of oil—a key global price that has virtually halved in the space of just a few months—has received a lot of attention lately.

Meanwhile, another significant shift has taken place in recent months that is just as surprising and has wide-reaching global implications—the dramatic drop in long-term U.S. Treasury bond yields. The last time we saw 10-year Treasury bond yields this low was in early May 2013. As many will remember, this didn’t last long and when it corrected, it set off a burst of volatility across emerging markets.

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