Posted on April 13, 2011 by iMFdirect
By José Viñals
In various guises, the “Year of Living Dangerously” has been used to describe the global financial crisis, the policy response to the crisis, and its aftermath.
But, we’ve slipped well beyond a year and the financial system is still flirting with danger. Durable financial stability has, so far, proven elusive.
Financial stability risks may have eased, reflecting improvements in the economic outlook and continuing accommodative policies. But those supportive policies—while necessary to restart the economy—have also masked serious, underlying financial vulnerabilities that need to be addressed as quickly as possible. Continue reading
Filed under: Advanced Economies, Emerging Markets, Financial Crisis, Financial regulation, International Monetary Fund | Tagged: asset quality, balance sheets, bank credit, bank restructuring, banking system, capital buffers, capital controls, capital inflows, debt sustainability, financial imbalances, financial sector risk, financial stability, global financial crisis, Global Financial Stability Report, government debt, household indebtedness, macroprudential policies, medium-term fiscal consolidation, overheating, sovereign funding | 5 Comments »
Posted on April 12, 2011 by iMFdirect
By Carlo Cottarelli
Undertaking a sizable fiscal adjustment is a lot like driving up a tall mountain: it’s hard work, it can take a long time, and you don’t want to run out of fuel partway up the incline. Countries are starting the climb, cutting back government deficits and debt levels, but according to our analysis often current plans aren’t enough to get countries where they need and want to go.
The plans in place are large by historical standards, which brings with it difficult choices, and particular risks and uncertainties. Let me fill you in on what these are. Continue reading
Filed under: Economic Crisis, Fiscal policy, International Monetary Fund, Public debt | Tagged: bank recapitalization, cyclically adjusted balance, debt sustainability, fiscal adjustment, fiscal consolidation, Fiscal Monitor, fiscal sustainability, government debt, interest rate-growth differential, medium-term fiscal consolidation, primary budget balance, public debt, sovereign risks | 1 Comment »
Posted on April 11, 2011 by iMFdirect
By Olivier Blanchard
The world economic recovery is gaining strength, but it remains unbalanced.
Three numbers tell the story. We expect the world economy to grow at about 4.5 percent a year in both 2011 and 2012, but with advanced economies growing at only 2.5 percent, while emerging and developing economies grow at a much higher 6.5 percent.
On the good news side. Earlier fears of a double dip—which we did not share—have not materialized. Continue reading
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, International Monetary Fund, Low-income countries | Tagged: bank recapitalization, capital controls, capital inflows, commodity prices, economic recovery, exchange rate, Financial regulation, financial stability, financial supervision, fiscal consolidation, Fiscal Stimulus, fiscal sustainability, inflation expectations, inventory cycle, macroprudential policies, policy coordination, potential output, private demand, unemployment, World Economic Outlook | 8 Comments »
Posted on April 8, 2011 by iMFdirect
By Andrew G. Berg and Jonathan D. Ostry
Many of us have been struck by the huge increase in income inequality in the United States in the past thirty years. The rich have gotten much richer, while just about everyone else has had very modest income growth.
Some dismiss inequality and focus instead on overall growth—arguing, in effect, that a rising tide lifts all boats. But assume we have a thousand boats representing all the households in the United States, with boat length proportional to family income. In the late 1970s, the average boat was a 12 foot canoe and the biggest yacht was 250 feet long. Thirty years later, the average boat is a slightly roomier 15 footer, while the biggest yacht, at over 1100 feet, would dwarf the Titanic! When a handful of yachts become ocean liners while the rest remain lowly canoes, something is seriously amiss.
In fact, inequality matters. And it matters in all corners of the globe. Continue reading
Filed under: growth, Inequality, International Monetary Fund | Tagged: debt, economic growth, growth, income distribution, income inequality, inequality, macroeconomic stability, sustainable growth, trade openness | 42 Comments »
Posted on April 8, 2011 by iMFdirect
By José Viñals
When the global financial system was thrown into crisis, many policymakers were shocked to discover a gaping hole in their policy toolkit.
They have since made significant progress in developing macroprudential policy measures aimed at containing system-wide risks in the financial sector. Yet progress has been uneven. Greater efforts are needed to transform this policy patchwork into an effective crisis-prevention toolkit.
Given the enormous economic and human cost of the recent financial debacle, I strongly believe that we cannot afford to miss this opportunity for substantial reform. Continue reading
Filed under: Financial Crisis, Financial regulation, G-20, International Monetary Fund | Tagged: capital requirements, credit growth, crisis prevention, financial stability, global financial crisis, global financial system, loan-to-value ratio, macroprudential policies, macroprudential regulation, regulatory arbitrage, systemic risk | 9 Comments »
Posted on April 6, 2011 by iMFdirect
By Jeanne Gobat
The near collapse of the financial system that set off the global crisis was due in part to financial institutions suddenly lacking access to funding markets, and liquidity drying-up across securities markets.
Many financial institutions were unable to roll over or obtain short term funding without sustaining significant losses. This threatened to sink them.
Financial institutions did not factor in how their own responses to a liquidity shortfall could make the entire system shut down and less stable—that is, they underestimated their contribution to systemic liquidity risk in good times, and did not bear the cost of their actions on others in bad times.
It only takes a few institutions to pull the plug on a liquidity-filled bathtub before it runs dry, and the central bank needs to open the spigots again. Continue reading
Filed under: Financial Crisis, Financial regulation, International Monetary Fund | Tagged: Basel III, financial institutions, financial system, funding markets, global financial crisis, Global Financial Stability Report, liquidity conditions, liquidity risk, macroprudential policies, Microprudential regulations, regulatory reform, solvency risk, stress-testing, systemic liquidity risk | 1 Comment »
Posted on April 5, 2011 by iMFdirect
Open, wide-ranging, and balanced discussion. For Olivier Blanchard—and co-hosts David Romer, Michael Spence & Joseph Stiglitz—that was the goal of last month’s conference at the IMF on the future of macroeconomic policies after the global financial crisis. And it is exactly what they got.
The crisis was a wakeup call for theorists and policymakers… Economic models, policy tools, and how they are applied need to catch up with changes in the global economic and financial system.
You’ve heard here about views from the conference, but there’s plenty of discussion going on outside the IMF. Here’s a snapshot…. Continue reading
Filed under: Economic research, International Monetary Fund | Tagged: Anders Aslund, David H. Romer, Financial regulation, financial sector risk, global financial crisis, high-frequent trading, Joseph E. Stiglitz, macroeconomic models, Macroeconomic policies, Mark Thoma, Matthew Yglesias, Michael Spence, Olivier Blanchard, Paul Krugman, Perry Mehrling, policy tools, Robert Solow, unemployment | 2 Comments »