How Much Finance Is Too Much: Stability, Growth & Emerging Markets


By Ratna Sahay, Martin Čihák, and Papa N’Diaye 

The world still lives in the shadow of the global financial crisis that began in the United States in 2008.  The U.S. experience shone a spotlight on the dangers of financial systems that have grown exponentially and beyond traditional banks. It triggered a rethinking of the extent and speed of the expansion of a country’s financial sector, and raised questions about which policies promote a safe financial system.

In our new study, we emphasize that the most commonly used indicator—bank credit—is not sufficient to measure the size and scope of a country’s financial development. We create a comprehensive index for over 170 countries to answer several policy questions from the perspective of emerging markets.

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Ten Take Aways from the “Rethinking Macro Policy: Progress or Confusion?”


blanchBy Olivier Blanchard

On April 15-16, the IMF organized the third conference on “Rethinking Macro Policy.

Here are my personal take aways.

1. What will be the “new normal”?  

I had asked the panelists to concentrate not on current policy challenges, but on challenges in the “new normal.” I had implicitly assumed that this new normal would be very much like the old normal, one of decent growth and positive equilibrium interest rates. The assumption was challenged at the conference.

On the one hand, Ken Rogoff argued that what we were in the adjustment phase of the “debt supercycle.” Such financial cycles, he argued, end up with debt overhang, which in turn slows down the recovery and requires low interest rates for some time to maintain sufficient demand.  Under that view, while it may take a while for the overhang to go away, more so in the Euro zone than in the United States, we should eventually return to something like the old normal.

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Unclogging Euro Area Bank Lending


By Will Kerry and Jean Portier

A year ago our research showed Europe had an €800 billion stock of bad loans.  In our latest Global Financial Stability Report we show that the problem has now grown to more than €900 billion.  This stock of nonperforming loans is concentrated in the hardest hit economies, with two-thirds located in just six euro area economies. The European Central Bank’s Asset Quality Review  confirmed this picture, which revealed that the majority of banks in many of these economies had high levels of nonperforming assets (see chart 1).

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Managing Capital Flows in Frontier Economies


By Jonathan D. Ostry, Atish R. Ghosh, and Mahvash S. Qureshi 

There has been a remarkable increase in financial flows to frontier economies from private sources which, in relation to their economic size, are now on par with those to emerging economies (see chart).

Ostry Capital Flows

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Close But Not There Yet: Getting to Full Employment in the United States


By Ravi Balakrishnan and Juan Solé

(Version in Español)

Last month’s report on U.S. jobs was disappointing, with far fewer jobs than expected added in March. A longer-term look at trends yields a different picture, however. Over the past year, U.S. job creation has been impressive. Payroll gains have averaged 260,000 per month—well above the 160,000 monthly average seen throughout the 2010–13 recovery.

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Multi-Track Monetary Policies in Advanced Economies: What This Means for Asia


By James Daniel and Rachel van Elkan

Since mid-2014, diversity and divergence—applying to countries’ economic situations, policies and performance—have dominated global economic discussions. Differing economic performance in major advanced countries has led to divergent monetary policies.

Both the Bank of Japan and the European Central Bank have started significant expansions of their balance sheets, while the U.S. Federal Reserve has ended its bond-buying program and is expected to start raising rates. This has had many effects, in particular, contributing to a sharp depreciation of the Yen and the Euro against the U.S. dollar (see chart 1).

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Spring Meetings Redux!


DSC_7906By Sabina Bhatia

Washington is at its best in the spring. Green shoots pop out, daffodils and magnolias are in full bloom and the cherry blossoms cast a pink halo over the city. After a long, cold winter, there is hope everywhere.

And so it was with the 2015 Spring Meetings of the IMF and World Bank. Hope was in the air—would the global economy avoid the “new mediocre” from becoming the “new reality?” Would Greece reach agreement with its creditors? Would there be progress on IMF governance reform?

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