Posted on July 9, 2015 by iMFdirect
By Olivier Blanchard
(Versions in Deutsch, Español, Français, Italiano, ελληνικά, Русский, 中文, 日本語, عربي, and Português)
All eyes are on Greece, as the parties involved continue to strive for a lasting deal, spurring vigorous debate and some sharp criticisms, including of the IMF.
In this context, I thought some reflections on the main critiques could help clarify some key points of contention as well as shine a light on a possible way forward.
The main critiques, as I see them, fall under the following four categories:
- The 2010 program only served to raise debt and demanded excessive fiscal adjustment.
- The financing to Greece was used to repay foreign banks.
- Growth-killing structural reforms, together with fiscal austerity, have led to an economic depression.
- Creditors have learned nothing and keep repeating the same mistakes.
Filed under: Advanced Economies, Debt Relief, Economic Crisis, Economic outlook, Employment, Europe, Financial Crisis, Fiscal policy, growth, IMF, International Monetary Fund, Politics, Public debt | Tagged: austerity, debt, debt restructuring, debt sustainability, ECB, euro, euro area, fiscal adjustment, Greece, Olivier Blanchard, VAT | 8 Comments »
Posted on June 25, 2015 by iMFdirect
By Ali Alichi, Douglas Laxton, Jarkko Turunen, and Hou Wang
A few weeks ago, the Fund suggested that the Federal Reserve could defer its first increase in the policy rate until it sees greater signs of wage or price inflation, with a gradual increase in the federal funds rate thereafter. Such a monetary policy strategy could help avoid the “dark corners” in which, as Olivier Blanchard has argued, small shocks can have potentially large effects. In this blog and accompanying working paper, we expand upon this idea. We also outline the potential benefits of an expanded communications toolkit.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Employment, Financial Crisis, Fiscal policy, Government, growth, IMF, International Monetary Fund, Investment, Public debt | Tagged: Federal Reserve, global economic outlook, inflation, interest rates, jobs, U.S., U.S. Fed, U.S. interest rates, U.S. monetary policy, United States | 1 Comment »
Posted on June 16, 2015 by iMFdirect
By Jorge Roldos and Alejandro Werner
(Versions in Español and Português)
Macroeconomists and financial sector experts need to talk to each other. Such communication is important to help identify and measure systemic risks as well as to coordinate and/or conduct macroprudential policies—rules that reduce instability across the financial system.
The creation of financial stability committees, including in Latin America, have been a forum for precisely this—working together to share information about evolving risks, develop monitoring and mitigating tools, and to define the decision-making authority, accountability, and communication to the general public. But institutional design and governance of these councils differ across countries.
Filed under: Economic Crisis, Economic outlook, Economic research, Emerging Markets, Español, Financial Crisis, Fiscal policy, Government, growth, IMF, International Monetary Fund, Latin America, Public debt | Tagged: Brazil, capital flows, central bank, Chile, financial stability, Latin America, Mexico, monetary policy, Peru | Leave a comment »
Posted on June 14, 2015 by iMFdirect
By Olivier Blanchard
(Versions in 中文, Français, ελληνικά, عربي, and Español)
The status of negotiations between Greece and its official creditors – the European Commission, the ECB and the IMF – dominated headlines last week. At the core of the negotiations is a simple question: How much of an adjustment has to be made by Greece, how much has to be made by its official creditors?
In the program agreed in 2012 by Greece with its European partners, the answer was: Greece was to generate enough of a primary surplus to limit its indebtedness. It also agreed to a number of reforms which should lead to higher growth. In consideration, and subject to Greek implementation of the program, European creditors were to provide the needed financing, and provide debt relief if debt exceeded 120% by the end of the decade.
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Employment, Europe, Financial Crisis, Fiscal policy, growth, IMF, International Monetary Fund, Multilateral Cooperation, Politics, Public debt, Reform | Tagged: Europe, European Commission, fiscal adjustment, Greece, Olivier Blanchard, pension, pension reform | 11 Comments »
Posted on June 2, 2015 by iMFdirect
By Jonathan D. Ostry and Atish R. Ghosh
Financial bailouts, stimulus spending, and lower revenues during the Great Recession have resulted in some of the highest public debt ratios seen in advanced economies in the past forty years. Recent debates have centered on the pace at which to pay down this debt, with few questions being asked about whether the debt needs to be paid down in the first place.
A radical solution for high debt is to do nothing at all—just live with it. Indeed, from a welfare economics perspective—abstracting from real world problems such as rollover risk—this would be optimal. We explore this issue in our recent work. While there are some countries where clearly debt needs to be brought down, there are others that are in a more comfortable position to fund themselves at exceptionally low interest rates, and that could indeed simply live with their debt (allowing their debt ratio to decline through growth or windfall revenues).
Filed under: Advanced Economies, Debt Relief, Economic Crisis, Economic outlook, Economic research, Finance, Fiscal policy, IMF, International Monetary Fund, Public debt, recession | Tagged: bailout, budgets, debt, fiscal policies, Great Recession, interest rates | Leave a comment »
Posted on April 8, 2015 by iMFdirect
By Xavier Debrun
(Versions in عربي, 中文, Français, Русский, 日本語and Español)
Anyone can easily picture an economy where instability, stagnation and runaway government deficits converge into a perfect storm. Yet the simple mirror image of stability, growth, and balanced budgets currently seems odd to many. And with monetary policy looking breathless, some even wonder whether sacrificing fiscal sanity for short-term growth might not be worth a try.
In any economic debate, looking at the data is always a good starting point. And the latest issue of the Fiscal Monitor does exactly that. Our study looks at the experience with fiscal stabilization during the past three decades in a broad sample of 85 advanced, emerging market, and developing economies. The message is loud and clear: governments can use fiscal policy to smooth fluctuations in economic activity, and this can lead to higher medium-term growth. This essentially means governments need to save in good times so that they can use the budget to stabilize output in bad times. In advanced economies, making fiscal policies more stabilizing could cut output volatility by about 15 percent, with a growth dividend of about 0.3 percentage point annually.
Filed under: Annual Meetings, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Financial Crisis, Fiscal policy, growth, IMF, International Monetary Fund, Investment, Public debt, Reform | Tagged: debt, emerging market, Fiscal Monitor, fiscal policy, fiscal stabilization, government deficits, investment, recession | Leave a comment »
Posted on March 27, 2015 by iMFdirect
By Vitor Gaspar
One of the big questions to emerge from the global financial crisis, especially in the euro area, is how to raise a country’s potential growth while restoring healthy public finances. For example, the euro area— despite some favorable news recently — faces marked-down growth prospects alongside high levels of public debt. The combination of high debt and tepid potential growth underscores the importance of improving prospects for sustained growth and safe and resilient public finances. A fundamental question then arises: what is the relation between fiscal consolidation and structural reform?
Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Employment, Europe, Financial Crisis, Fiscal policy, growth, IMF, International Monetary Fund, Investment, Public debt, Reform | Tagged: euro area, Fiscal Monitor, fiscal policy, Germany, labor market, risk management, structural reform, Sweden, youth | Leave a comment »