The Lowdown on U.S. Core Inflation


Yasser AbdihBy Yasser Abdih

There was a time when U.S. central bankers worried that inflation was too high, and they tried to bring it down. Now the opposite is true: the Federal Reserve is concerned that inflation has remained stubbornly low, and it’s trying to boost prices. The reason: persistently low inflation raises the risk that prices will actually start to decline, a dangerous condition known as deflation. That’s bad news because it makes people less willing to borrow and spend—anticipating lower prices, consumers will put off spending—and could also lead to a fall in wages. Continue reading

What Future for Unconventional Monetary Policies


Maurice Obstfeld2By Maurice Obstfeld

How quickly should the United States tighten monetary policy and exit from quantitative easing?  Is the neutral real interest rate lower than before the crisis? Should we raise inflation targets?  What can we learn from the unconventional policies that emerging markets adopted during the crisis? Are we entering an environment of global deflation?  And if so, can the existing central bank toolkit stave off that threat?

Seven years after the crisis, the effects of unconventional monetary policies continue to be a matter of debate. There is little consensus not only about the effectiveness of these policies in promoting aggregate demand, but also about possible unintended side effects on financial stability.

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“To Lean or Not to Lean?” That is the Question


By Stefan Laseen, Andrea Pescatori, and Jarkko Turunen

Academics and policy-makers alike have long struggled with the question of whether to use monetary policy to dampen asset price booms – whether to “lean against the wind” or not. Can officials identify emerging asset price bubbles, what are the implications of bursting them, and is monetary policy the appropriate response to potential bubbles? These questions have become even more important to the policy debate in the wake of the global financial crisis, which was preceded by an unsustainable boom in sub-prime mortgage lending and housing prices.

Given over six years of near zero policy interest rates, should the U.S. Fed now use interest rates to lean against potential financial stability risks that may have built up?

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U.S. Monetary Policy: Avoiding Dark Corners


By Ali Alichi, Douglas Laxton, Jarkko Turunen, and Hou Wang

Copyright : © fStop Images GmbH / AlamyA 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.

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Challenges Ahead: Managing Spillovers


By Olivier Blanchard, Luc Laeven, and Esteban Vesperoni

The last five years have been a reminder of the importance of interconnections and risks in the global economy. They have triggered intense discussions on the optimal way to combine fiscal, monetary, and financial policies to deal with spillovers, and on the need and the scope for coordination of such policies.

The IMF’s 15th Jacques Polak Annual Research Conference, which took place in Washington DC on November 13 and 14, 2014, focused on Cross-Border Spillovers, and took stock of what we know and do not know.  The summary below picks and chooses some papers, and does not do justice to the full set of papers presented and discussed at the conference.  They can all be downloaded, and videos of each session are available, at www.imf.org/external/np/res/seminars/2014/arc.

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Reduced Speed, Rising Challenges: IMF Outlook for Latin America and the Caribbean


Alejandro WernerBy Alejandro Werner

(Version in Español and Português)

The prospects for global growth have brightened in recent months, led by a stronger recovery in the advanced economies. Yet in Latin America and the Caribbean, growth will probably continue to slow, although some countries will do better than others. We analyze the challenges facing the region in our latest Regional Economic Outlook and discuss how policymakers can best deal with them.

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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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