The New Global Imbalance: Too Much Financial Risk-Taking, Not Enough Economic-Risk Taking


GFSR By José Viñals

(Versions in Español中文)

I have three key messages for you today:

1. Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.

2. Banks are safer but may not be strong enough to vigorously support the recovery. And risks are shifting to the shadow banking system in the form of rising market and liquidity risks. If left unaddressed, these risks could compromise global financial stability.

3. In order to address this new global imbalance, we must promote economic risk-taking by improving the transmission of monetary policy to the real economy. And we must address financial excesses through better micro- and macroprudential policies.

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Emerging Market Corporate Sector Debt: A Stitch in Time Could Save Billions


By Julian Chow and Shamir Tanna

(Versions in Español)

Much has been said lately about growing private sector debt in emerging market economies. In our recent analysis, we examined the corporate sector in a number of countries and found their rising levels of debt could make them vulnerable.

Low global interest rates in the aftermath of the global financial crisis and ample amounts of money pouring in from foreign investors have enabled nonfinancial corporations to raise record levels of debt.

figure 1

Credit was readily available in the aftermath of the crisis, and economic expansion enabled earnings to grow healthily, thus helping to prevent leverage from rising too far and too fast.  Recently though, slowing growth prospects are beginning to put pressure on firms’ profitability. Moreover, higher debt loads have led to growing interest expense, despite low interest rates. As a result, the ability of firms to service their debt has weakened (Figure 1).

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Era of Benign Neglect of House Price Booms is Over


Min ZhuBy Min Zhu

(Versions in  عربيEspañol, 日本語中文, Français, and Русский)

House prices are inching up.  But is this a cause for much cheer?  Or are we watching the same movie again? Recall how after a decade-long boom, house prices started to fall in 2006, first in the United States and then elsewhere, contributing to the 2008-9 global financial crisis. In fact, our research indicates that boom-bust patterns in house prices preceded more than two-thirds of the recent 50 systemic banking crises. Real Estate Boom.Chart1

While a recovery in the housing market (Figure 1) is surely a welcome development, we need to guard against another unsustainable boom. Housing is an essential sector of every country’s economy and has systemic implications, which is why we at the IMF are focusing on it not only in individual countries but on a cross-country basis.

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Socrates & the Pope: Overheard at the IMF’s Spring Meetings


By IMFdirect editors

Socrates’ famous method to develop his students’ intellect was to question them relentlessly in an unending search for contradictions and the truth—or at the very least, a great quote.

The method was alive and well among the moderators, panelists and audiences of the IMF’s Spring Meetings seminars that took place alongside official discussions, where boosting high-quality growth, with a focus on the medium term, was at the top of the agenda.  Our editors fanned out and found a couple of big themes kept coming up.  Here are some of the highlights.

Monetary policy 

Lots of people are talking about what happens when the flood of easy money into emerging markets thanks to low interest rates in advanced economies like the United States slows even more than it has in the past year.

At a seminar on fiscal policy the discussion focused on the challenges facing policymakers as central banks slowly exit from unconventional monetary policy and interest rates begin rising.

A live poll of the audience found 63 percent said the global economy remains weak and unconventional monetary policies should remain in place.

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Rethinking Macroeconomic Policy


blanchBy Olivier Blanchard

(Versions in عربي中文FrançaisРусский, and Español)

The IMF has just hosted a second conference devoted to rethinking macroeconomic policy in the wake of the crisis. After two days of fascinating presentations and discussions, I am certain of one thing:  this is unlikely to be our last conference on the subject.

Rethinking and reforms are both taking place.  But we still do not know the final destination, be it for the redefinition of monetary policy, or the contours of financial regulation, or the role of macroprudential tools. We have a general sense of direction, but we are largely navigating by sight.

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New links for economics and finance


Some interesting new links for those tracking economics and finance

  • Track global economic news on IMF Survey magazine’s new Google+ channel
  • Get the new Finance & Development magazine on youth demanding change
  • Try our new Back to Basics compilation explaining key economic concepts
  • Update your understanding of macroprudential policies–a primer explaining things relatively simply
  • New ideas –the case for a managed float under inflation targeting–blog
  • How to exit the Danger Zone: IMF update on global financial stability
  • Europe updates–a new IMF and Europe page
  • Want global financial analysis at your fingertips– try our new eLibrary or app
  • Free! Get our new ipad app for IMF news and data–it lets you chart and view global economic indicators and forecasts
  • Listen to podcasts about the global economy

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

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