The Financial System Is Stronger, but New Vulnerabilities Have Emerged in the Decade Since the Crisis

By Tobias Adrian

October 10, 2018

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Debt owed by governments, companies and households in economies with globally systemically important financial sectors has risen since the global financial crisis (Photo: Richard B. Levine/Newscom)

Although the global expansion has plateaued, easy monetary policies continue to support growth. But we shouldn’t rest too easily. Chapter 1 of the latest Global Financial Stability Report finds that short-term risks to the financial system have increased somewhat over the past six months. Continue reading “The Financial System Is Stronger, but New Vulnerabilities Have Emerged in the Decade Since the Crisis” »

Global Growth Plateaus as Economic Risks Materialize

By Maurice Obstfeld

October 9, 2018

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Uncertainty over trade policy is becoming a drag on economic activity (photo: Imagine China/Newscom)

The latest World Economic Outlook report projects that global growth will remain steady over 2018–19 at last year’s rate of 3.7 percent. This growth exceeds that achieved in any of the years between 2012 and 2016. It occurs as many economies have reached or are nearing full employment and as earlier deflationary fears have dissipated. Thus, policymakers still have an excellent opportunity to build resilience and implement growth-enhancing reforms.

Continue reading “Global Growth Plateaus as Economic Risks Materialize” »

A Decade After Lehman, the Financial System Is Safer. Now We Must Avoid Reform Fatigue

By Adolfo Barajas, Claudio Raddatz, and James P. Walsh

October 3, 2018

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A ticker in New York’s Times Square flashes the news of the collapse of Lehman Brothers on September 15, 2008: In the decade since, the financial sector has  strengthened considerably, but the reform agenda remains incomplete (Photo: Joshua Lott/Reuters/Newscom)

In the decade since the collapse of US investment bank Lehman Brothers sparked the most severe economic crisis since the Great Depression, regulation and supervision of the financial sector have been strengthened considerably. This has reduced the risk of another crisis, with all its attendant woes—unemployment, foreclosures, bankruptcies. But a new risk has emerged: reform fatigue. Continue reading “A Decade After Lehman, the Financial System Is Safer. Now We Must Avoid Reform Fatigue” »

Volatility Strikes Back

By Sergei Antoshin, Fabio Cortes, Will Kerry and Thomas Piontek

May 3, 2018 

Investors who bet on continued low volatility suffered steep losses (photo: Richard B. Levine/Newscom).

The bouts of volatility in early February and late March that spooked investors were confined to equity markets. Nevertheless, they illustrate the potential for sudden market moves to expose fragilities in the financial system more broadly.

With central banks in advanced economies set to normalize their monetary policies just as trade and geopolitical tensions flare up, economic and policy uncertainty may rise and financial conditions may tighten abruptly. Continue reading “Volatility Strikes Back” »

Fiscal Rules: Make them Easy to Love and Hard to Cheat

By Xavier Debrun, Luc Eyraud, Andrew Hodge, Victor Lledo, Catherine Pattillo, Abdelhak Senhadji

April 13, 2018

Versions in Español (Spanish), Français (French),  Português  (Portuguese)

The national debt clock in New York City: a fiscal rule, like the debt ceiling, should not be set too low or too high. (photo: Frances M. Roberts/Newscom)

Rules to contain lavish government deficits are most effective if countries design them to be simple, flexible, and enforceable in the face of changing economic circumstances.

In new analysis, we look at fiscal rules in over 90 countries and, based on their experiences, find that the rules put in the place over the last three decades often were too complex, overly rigid, and difficult to enforce. Continue reading “Fiscal Rules: Make them Easy to Love and Hard to Cheat” »

Risky Business: Reading Credit Flows for Crisis Signals

By Claudio Raddatz Kiefer and Jérôme Vandenbussche 

April 10, 2018

Versions in عربي (Arabic),  中文 (Chinese),  Español (Spanish),  Français (French), 日本語 (Japanese), Português  (Portuguese), Русский (Russian)

The odds of a severe economic downturn are higher when a growing portion of credit flows to riskier firms, according to a new IMF study (Photo: Pali 137/ iStock by Getty Images).

Supervisors who monitor the health of the financial system know that a rapid buildup of debt during an economic boom can spell trouble down the road. That is why they keep a close eye on the overall volume of credit in the economy. When companies go on a borrowing spree, supervisors and regulators may decide to put the brakes on credit growth.

Trouble is, measuring credit volume overlooks an important question: how much of that additional money flows to riskier companies – which are more likely to default in times of trouble—compared with more creditworthy firms? The IMF’s latest Global Financial Stability Report seeks to fill that gap by constructing measures of the riskiness of credit allocation, which should help policy makers spot clouds on the economic horizon. Continue reading “Risky Business: Reading Credit Flows for Crisis Signals” »

For Home Prices in London, Check the Tokyo Listings

By Claudio Raddatz Kiefer and Jane Dokko

April, 10, 2018

Versions in عربي (Arabic);  中文 (Chinese), Español (Spanish),  Français (French), 日本語 (Japanese),  Português (Portuguese)

Hong Kong viewed from Victoria Peak. House prices across countries and cities are increasingly moving in tandem (Photo: Fraser Hall/Robert Harding/Newscom).

If house prices are rising in Tokyo, are they also going up in London?

Increasingly, the answer is yes.

In recent decades, house prices around the world have shown a growing tendency to move in the same direction at the same time. What accounts for this phenomenon, and what are the implications for the world economy? These are questions that IMF economists explore in Chapter 3 of the latest Global Financial Stability Report. Continue reading “For Home Prices in London, Check the Tokyo Listings” »

The Struggle to Manage Debt

By Christoph Rosenberg

March 1, 2018

Good economic times offer an opportunity to tackle budget deficits

The global economy has a spring in its step. Growth is picking up, and we at the IMF have been ratcheting up our forecasts. Government coffers are filling and, with more people at work, demand for public social support is receding. The fiscal woes of the past decade seem behind us.

But this sunny perspective ignores debt levels that remain close to historic highs and the inevitable end of the cyclical upswing. Estimates of underlying growth potential have hardly budged, and interest rates—the cost of servicing all this debt—are starting to rise, which will eventually make it harder to refinance bonds and loans. Continue reading “The Struggle to Manage Debt” »

Financial Stability Improves, But Rising Vulnerabilities Could Put Growth at Risk

By Tobias Adrian

October 11, 2017

Versions in Versions in عربي (Arabic), 中文 (Chinese), Español (Spanish), Français (French). 日本語 (Japanese), Русский (Russian)

The headquarters of the European Central Bank in Frankfurt, Germany: To avoid causing market turbulence, central banks will have to clearly communicate their plans to gradually unwind crisis-era policies (photo: Caro/Sven Hoffman/Newscom).

It seems like a paradox. The world’s financial system is getting stronger, thanks to healthy economic growth, buoyant markets, and low interest rates. Yet despite these favorable conditions, dangers in the form of rising financial vulnerabilities are starting to loom. That is why policymakers should act now to keep those vulnerabilities in check. Continue reading “Financial Stability Improves, But Rising Vulnerabilities Could Put Growth at Risk” »

How Policy Makers Can Better Predict a Downturn – and Prepare

By Claudio Raddatz and Jay Surti

October 3, 2017

Versions in  عربي (Arabic) ,  (Chinese), Español (Spanish), Français (French),日本語  (Japanese),  Русский (Russian)

A trading floor in Singapore. Financial conditions provide valuable clues to the economic outlook and can improve the accuracy of forecasts (photo: Caro/Oberhaeuser/Newscom).

The global financial crisis showed that periods of robust growth and seeming calm in financial markets can be followed by a sudden surge in market volatility and an unexpected economic downdraft. That’s why it is so important for policy makers to keep a close watch on so-called financial conditions. These can include everything from bond yields and oil prices to foreign exchange rates and levels of domestic debt. Continue reading “How Policy Makers Can Better Predict a Downturn – and Prepare” »

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