A Stronger Financial Architecture for Tomorrow’s World


By Dominique Strauss-Kahn

(Version in Español Français 日本語)

The international monetary system (IMS) is a topic that encompasses a wide range of issues—reserve currencies, exchange rates, capital flows, and the global financial safety net, to name a few. It is one of the key issues on the G-20’s work agenda for 2011, and a topic that is eliciting lively discussion—for instance the recent, insightful report of the group chaired by Michel Camdessus, called the “Palais-Royal Initiative”.

Some are of the view that the current system works well enough. While not perfect, they point to its resilience during the crisis, citing the role of the U.S. dollar served as a safe haven asset. And now that the global recovery is underway, they see little reason to worry about the IMS. In other words, “if it ain’t broke, don’t fix it”.

I take a less sanguine view. Continue reading

Toto, we’re not in Kansas anymore: Exploring the Contours of the Financial System After the Tornado


By Laura Kodres

Just as a tornado in Kansas transplanted Dorothy and, her dog, Toto, from familiar comforts to the unknown land of Oz, the global crisis has led many to wonder what has become of the global financial system and, more importantly, what will it look like next. Is the wicked witch of the West—excessive risk taking and leverage—really dead?

But now, as the storm subsides, there is time to speculate about what the future financial sector might look like. My IMF colleague, Aditya Narain, and I have done just that in a new Staff Position Note that attempts to discern the contours of this new financial landscape. What is clear is that the new landscape will be influenced by both the private and public sectors—their reactions to the crisis and to each other.

Continue reading

Thinking Beyond the Crisis: Themes from the IMF’s 10th Annual Research Conference


By Olivier J. Blanchard 

We celebrated the 10th anniversary of the IMF’s research conference with an outstanding group of presenters and a record number of participants. The main topic of this year’s conference was “Financial Frictions and Macroeconomic Adjustment.”

Two days of scholarly exchange among researchers and policymakers focused on various themes related to the crisis. I’ve summarized here some of these themes along with their implications for future research.

1.      Household leverage played a critical role in shaping the dynamics during the current U.S. recession. The first paper of the conference provided convincing evidence that the U.S. counties where household leverage had grown the most during the boom were also the ones that experienced the largest busts as measured by home prices, defaults, auto sales, and unemployment. Future research should focus on the policy implications of these findings, especially in the context of the role of monetary policy in mitigating the adverse effects of asset bubbles. 

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