Central Banks, Financial Regulators, and the Quest for Financial Stability: 2011 IMF Annual Research Conference


By Olivier Blanchard

The global financial crisis gave economists pause for thought about what should be the future of macroeconomic policy. We have devoted much of our thinking to this issue these past three years, including how the many policy instruments work together.

The interactions between monetary and macroprudential policies, in particular, remain hotly debated. And this year’s IMF Annual Research Conference is an important opportunity to take that debate another step forward.

Looking back, it is striking how many papers from last year’s conference—on post-crisis macroeconomic and financial policies—have been so immediately relevant to events on the ground. Just to give you an example: the paper on fiscal space is obviously front and center in the policy debate on the European sovereign crisis, the United States’ budget, and challenges faced by advanced country governments more generally.

This year’s topic—monetary and macroprudential policies—is equally relevant. It goes to the core of central banks’ mandates, and their role in achieving macroeconomic and financial stability. The financial crisis triggered a fundamental rethinking of these issues, but much research, both conceptual and empirical, remains to be done. The conference provides an excellent opportunity to engage with prominent academics, policymakers and private sector practitioners. I hope the conference will contribute to expanding the frontier of knowledge on this topic. Continue reading

Capital Flows to Asia Revisited: Monetary Policy Options


By Anoop Singh

Capital flows into emerging Asia should be high on the ‘watch list’ for policymakers in the region. But, perhaps, not in the way we had previously anticipated.

Twelve months ago our policy antennae were keenly attuned to the risks posed by the foreign capital that flooded into Asia from mid-2009 onwards. What was remarkable about this was the speed of the rebound after the massive drop during the global financial crisis. Within just 5 quarters, net inflows rose from their early 2009 trough to their mid-2010 peak—a mere one-fifth of the time that typically elapsed between troughs and peaks in the cycle of capital flows during the pre-Asian crisis period.

Another twelve months on, what we’re seeing is not really all that “exceptional”—a point often overlooked in the current debate on capital inflows to emerging markets. Continue reading

The Next Phase of Asia’s Economic Growth


By Anoop Singh

(Version in 中文,  日本語 and 한국어)

As the economic recovery has matured across much of Asia, the region has continued to be a driving force in the strengthening global recovery. Yet, recent tragic events—around the globe, and the earthquake and tsunami in Japan—are an all too poignant reminder of the fragility of our economic circumstances and, indeed, life.

Much of this weighs on my mind as I am here in Hong Kong to launch our April 2011 Regional Economic Outlook: Asia and Pacific. While the outlook is by no means gloomy, it is an opportune time to consider how Asia should manage the next phase of growth. Continue reading

Observations on the Evolution of Economic Policies


Guest post by Michael Spence, New York University,
Professor Emeritus Stanford University, and
co-host of the Conference on Macro and Growth Policies in the Wake of the Crisis

It was a privilege to participate in the IMF conference devoted to rethinking policy frameworks in the wake of the crisis. Highly encouraging was the openness of the discussion, the range of views, the willingness to question orthodoxy, and the posture of humility.

One gets the impression that the crisis has triggered a response that it should trigger, and we have embarked on a path of rethinking conceptual frameworks and policy choices in a way that will contribute to the stability of the system.

That said, the good news is that we recognize that in finance and parts of macroeconomics the models or frameworks are incomplete. That represents a challenge to the academic community. But it also means that, in the short run, participants and regulators will be operating with incomplete models. This will require judgments (which will be uncomfortable in contrast to the earlier sense of certainty). There will be mistakes. And, as Olivier Blanchard said in his excellent summary, we will proceed step-by-step, evaluating the impacts of policy choices and sometimes reversing course. Continue reading

Government Bonds: No Longer a World Without Risk


By José Viñals

The risk free nature of government bonds, one of the cornerstones of the global financial system, has come into question as the global crisis unfolds.

One thing is now very clear: government bonds are no longer the risk-free assets they once were. This carries far reaching implications for policymakers, central bankers, debt managers, and how the demand and supply sides of government bond markets function.

After a recent IMF conference on a new approach to government risk, I’d like to highlight three key aspects: Continue reading

An Important Starting Point—with One Gap


Guest post by David H. Romer,
University of California, Berkeley, and
co-host of the Conference on Macro and Growth Policies in the Wake of the Crisis

I had one major source of unhappiness with last week’s conference: the participants were largely silent about the dismal outlook in the advanced economies for the next several years. The current outlook for unemployment in the United States, Europe, and Japan is probably worse than it was in late 2008. Then, mainstream forecasts for 2009–2011 showed unemployment rising sharply—but generally to levels below what we are experiencing today—and then returning toward normal at a moderate pace. Today, not only is unemployment higher than most 2008 forecasts of its peak levels, but the expected pace of recovery is weaker.

Despite this deterioration, the dire sense of urgency in late 2008 has not increased. Indeed, it has largely disappeared. I find this complacency in the fact of vast, preventable suffering and waste hard to understand. Continue reading

Latin America: Making the Good Times Better


By Dominique Strauss-Kahn

(Version in Español, Português)

Latin America has enjoyed tremendous economic dynamism and a rising quality of life in recent years. But, faced with new challenges, the question is: how best to sustain this progress?

As I travel through the region this week—visiting Panama, Uruguay, and Brazil—I’m looking forward to hearing the views of government officials, parliamentarians, and university students on the key challenges facing their countries today. Here are three questions that I look forward to discussing during my trip. Continue reading

Today’s Information is Ammunition for Tomorrow


By Luis M. Cubeddu and Camilo E. Tovar

(Version in Español)

Many Latin American economies are booming due to strong inflows of capital and stronger export earnings from high commodity prices. Though favorable today, this situation is also a double-edged sword.

Households, companies, and banks are spurred to take on financial risk. But, if risks become excessive or poorly managed, they sow the seeds of future problems. The region has experienced firsthand the boom and bust cycles that can ensue, and there is consensus that this needs to be avoided or minimized in the future. The IMF’s two latest Regional Economic Outlooks for the region—published in May and October 2010—focused on precisely this issue.

While the bottom line is the need for effective macroeconomic policy management and implementation, information is an essential ingredient. Continue reading

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