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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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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Turkey’s Recipe to Escape the Middle-Income Trap


By Gregorio Impavido and Uffe Mikkelsen

(Version in Türk)

Turkey is going through a time of economic transition, with slowing growth that risks the country being caught in a “middle-income trap,” unable to join the ranks of high income economies. 

The country grew at 6 percent per year on average in the period 2010-13, with policies supportive of domestic consumption. This has generated a large current account deficit, mostly financed by short-term capital flows. The reliance on consumption at the expense of investment, slow export growth, and sizable investment needs have hurt potential growth, with the economy already growing more modestly. Moreover, Turkey’s low domestic savings and competitiveness challenges have limited investment as well as exports, which have also suffered from the slow growth in Europe.

With current policies, Turkey’s economy is expected to grow only 3.5 percent annually over the next five years. Going forward, the economy must be rebalanced to make it more competitive and to restore output and employment growth.

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Now Is a Good Time to Invest in Infrastructure


By Abdul Abiad, Davide Furceri, and Petia Topalova

Infrastructure is the backbone of well-functioning economies. Unfortunately, that backbone is becoming increasingly brittle in a number of advanced economies. For example, there has been a decline in the overall quality of infrastructure in the United States and Germany (Figure 1; see the FT 2014 and ASCE 2013 for more in infrastructure in the U.S., and Der Speigel 2014 and Kunert and Link 2013 for Germany). In many emerging market and developing economies, the expansion of the backbone has not kept pace with the broader economy, and this is stunting the ability of these economies to grow.

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U.S. Labor Force: Where Have All the Workers Gone?


Ravi BalakrishnanBy Ravi Balakrishnan

(Version in Español)

It’s not supposed to be this way. As the U.S. economy recovers, hirings increase and people are encouraged to look for jobs again. Instead, the ratio of the adult population with jobs, or looking for one—what’s called the labor force participation rate—has been falling, standing at 62.9 percent in July 2014 (Figure 1).

Figure 1

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Managing Housing Market Risks in the United Kingdom


Ruy LamaBy Ruy Lama

House prices are rising rapidly in the UK at an annual rate of 10.5 percent. House price inflation is particularly high in London (20 percent per year), and it is gradually accelerating in the rest of the country. The recent increases in house prices have been getting a lot of attention, and understandably have raised questions about living standards and whether another “boom-bust” cycle has begun.

House Prices

The current UK housing cycle raises two important questions. What is driving the rise in house prices? And how should macroeconomic policies respond?

Macroeconomic policies should tackle two crucial issues in the housing market: (i) mitigating systemic financial risks during upswings in house prices and leverage; and (ii) encouraging an adequate supply of housing in order to safeguard affordability. In this blog, we discuss how the UK authorities are addressing these two issues and what additional policies may be necessary to manage risks from the housing market.

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Less Red Tape, More Credit: How the Private Sector Can Flourish in the Middle East


Min ZhuBy Min Zhu

(Versions in عربي)

To almost all economists it is clear that the private sector is critically important in creating jobs and achieving strong growth. The public sector is already overburdened in most countries. But what is not clear is how to support the private sector for it to play this important role.

To shed some light on how to facilitate strong job creation and growth by the private sector in the Middle East and North Africa, we held a conference in Riyadh, Saudi Arabia, in December 2013, jointly with the Council of Saudi Chambers and the International Finance Corporation.

As the date of the conference approached, registrations kept increasing, and by the time we opened the conference, the registration numbers had skyrocketed to more than 800! I can think of no better sign of the importance of this topic for the people in this region.

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