Inequality: Fiscal Policy Can Make the Difference

By Vitor Gaspar and Mercedes Garcia-Escribano

 October 11, 2017

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Wealth and poverty side-by-side in Rio de Janeiro, Brazil: inequality is rising within countries around the world (photo: Jean-Marc David/SIPA/Newscom). 

Income inequality among people around the world has been declining in recent decades. This is due to countries like China and India’s incomes catching-up to advanced economies. But the news is not all good. Inequality within countries has increased, particularly in advanced economies. Since the global economic recovery has gained pace and is now widespread, policymakers have a window of opportunity to respond with reforms that tackle inequality, and our new Fiscal Monitor shows how the right mix of fiscal policies can make the difference.

Continue reading “Inequality: Fiscal Policy Can Make the Difference” »

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

By Tobias Adrian

October 11, 2017

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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” »

Global Economic Upswing Creates a Window of Opportunity

By Maurice Obstfeld

October 10, 2017

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The global recovery is continuing, and at a faster pace. The picture is very different from early last year, when the world economy faced faltering growth and financial market turbulence. We see an accelerating cyclical upswing boosting Europe, China, Japan, and the United States, as well as emerging Asia.

The latest World Economic Outlook has therefore upgraded its global growth projections to 3.6 percent for this year and 3.7 percent for next—in both cases 0.1 percentage point above our previous forecasts, and well above 2016’s global growth rate of 3.2 percent, which was the lowest since the global financial crisis. Continue reading “Global Economic Upswing Creates a Window of Opportunity” »

Inequality: Tools from the Old Masters to Help Today’s Policymakers

By Vitor Gaspar, Paolo Mauro, and Tigran Poghosyan

October 3, 2017

Unemployed day laborers in South Africa: the country has relatively high income, but also high inequality (photo: Rogan Ward/Newscom).

With inequality rising in many countries, policymakers need to choose the best fiscal policies that will help share the benefits of economic growth, and in so doing, make it more inclusive.

The early 20th century English economist Arthur Pigou, among others, saw economic welfare as influenced by both “the size of the national dividend” and “the way in which it is distributed among the members of the community.” Continue reading “Inequality: Tools from the Old Masters to Help Today’s Policymakers” »

How Policy Makers Can Better Predict a Downturn – and Prepare

By Claudio Raddatz and Jay Surti

October 3, 2017

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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” »

Rising Household Debt: What It Means for Growth and Stability

By Nico Valckx

October 3, 2017

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Household debt, including mortgage debt, has been on the rise since the global financial crisis (photo: Louoates/iStock).

Debt greases the wheels of the economy. It allows individuals to make big investments today–like buying a house or going to college – by pledging some of their future earnings.

That’s all fine in theory. But as the global financial crisis showed, rapid growth in household debt – especially mortgages – can be dangerous. Continue reading “Rising Household Debt: What It Means for Growth and Stability” »

Corruption in Latin America: A Way Forward

By David Lipton, Alejandro Werner, and S. Pelin Berkmen

September 28, 2017

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Sustained action on many fronts will be needed to push countries out of the corruption trap (photo: People Images/iStock). 

In our first blog of this two-part series, we noted that, despite recent progress, corruption in Latin America is still high. In this second blog, we look at measures to fight corruption that have worked well in other countries. Learning about these policies can provide insights to guide Latin America in the design of their anti-corruption strategies, even if the final shape of these policies will differ depending on country specifics. Continue reading “Corruption in Latin America: A Way Forward” »

The Disconnect Between Unemployment and Wages

By Gee Hee Hong, Zsoka Koczan, Weicheng Lian, Malhar Nabar

September 27, 2017

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Demand for workers is rising, but pay is hardly catching up (photo: Shironosov/iStock).

Over the past three years, labor markets in many advanced economies have shown increasing signs of healing from the Great Recession of 2008-09. Yet, despite falling unemployment rates, wage growth has been subdued–raising a vexing question: Why isn’t a higher demand for workers driving up pay?

Our research in the October 2017 World Economic Outlook sheds light on the sources of subdued nominal wage growth in advanced economies since the Great Recession.  Understanding the drivers of the disconnect between unemployment and wages is important not only for macroeconomic policy, but also for prospects of reducing income inequality and enhancing workers’ security. Continue reading “The Disconnect Between Unemployment and Wages” »

Better thy Neighbor? Cross-border Effects of Fiscal Actions

By Patrick Blagrave, Giang Ho, Ksenia Koloskova, and Esteban Vesperoni

September 27, 2017

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Domestic fiscal policies, such as public spending, can generate meaningful spillovers to neighboring countries (Photo: Ymgerman/iStock by GettyImages)

In the wake of the global financial crisis, fiscal stimulus was advocated widely to help mitigate the recession. The thinking at the time was that fiscal stimulus would be particularly effective because its impact on activity tends to be larger when demand falls short of supply and central banks keep interest rates low. This, in turn, would lead to larger positive cross-border effects—or spillovers—on other countries.

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Chart of the Week: High Hurdles for Trade in Services

By IMFBlog

September 25, 2017

A shop window in Stockholm, Sweden: 62 % of jobs in the country are in the services sector (photo: Bob Strong/Reuters/Newscom).

The service sector accounts for some two-thirds of economic activity, and roughly the same share of jobs around the world. And yet the barriers to trade in services—from banking to online consultations with doctors or engineers—remain high.

Continue reading “Chart of the Week: High Hurdles for Trade in Services” »

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