The global financial crisis gave economists pause for thought about what should be the future of macroeconomic policy. We have devoted much of our thinking to this issue these past three years, including how the many policy instruments work together.
The interactions between monetary and macroprudential policies, in particular, remain hotly debated. This topic goes to the core of central banks’ mandates, and their role in achieving macroeconomic and financial stability. While the financial crisis triggered a fundamental rethinking of these issues, much research—both conceptual and empirical—remains to be done.
I hope this year’s IMF Annual Research Conference will contribute to expanding the frontier of knowledge on this topic.
Keeping Asia from Overheating
Asia’s vigorous pace of growth has seen the region play a leading role in the global recovery. But there are signs that higher commodity prices are spilling over to a more generalized increase in inflation. Expectations of future inflation have picked up. And accommodative macroeconomic policy stances, coupled with limited slack in some economies, have added to inflation pressures.
Against this backdrop, the need for policy tightening in Asia has become more pressing than it was six months ago, especially in economies that face generalized inflation pressures. How should policymakers address these challenges?
The Emerging Bright Spot in Europe
With all the anxiety generated by the troubles of Portugal, Greece, and Ireland, it is easy to forget that a different part of Europe was in the spotlight two years ago, facing equally dire predictions of bank runs, fiscal ruin, and devaluation.
Today, many economies in emerging Europe are quietly staging a strong comeback. Most impressive is the turnaround in the three Baltic countries, which suffered record deep recessions in the wake of the 2008/09 financial crisis. Take Lithuania, which grew an eye-catching 14.7 percent in the first quarter of 2011.
Given this good news, what more can policymakers do to sustain the recovery—and prevent a new boom-bust cycle? Raising the long-term growth trend is key.
Old Dilemmas, New Challenges: Monetary Policy and Capital Flows into Emerging Economies
For a decade or more, we at the IMF have grappled with the idea that very large capital flows into successful emerging market countries were almost inevitable and would prove extremely difficult to manage. Since these topics were first broached at a theoretical level, we have witnessed developments in a number of emerging economies in Europe that reinforce the concerns and underscore the implications for policy.
Two lessons may be learned from the experience. First, the choice between fixed and flexible exchange rates is important, but perhaps not for reasons that are usually put forward. Second, monetary policy—and policy to stabilize the economy more generally—needs substantial reinforcement.
Today’s Information is Ammunition for Tomorrow
Many Latin American economies are booming due to strong capital inflows and high commodity export prices. Though favorable today, booms can also be a double-edged sword. Risks that emerge, if excessive or poorly managed, can sow the seeds of future problems. Effective macroeconomic policy management and implementation is needed to avoid boom-bust cycles with which Latin America is all too familiar. But, for that, information is an essential ingredient.
Countries in Latin America have made good progress in strengthening statistics, but this blog posts identifies three key areas that are particularly relevant for monitoring the accumulation of risks and potential overheating where more action is needed.
Emerging Europe—Lessons from the Boom-Bust Cycle
Almost unnoticed amidst the difficulties in western Europe, the other half of the continent has begun to recover from the deepest slump in its post-transition period. In our fall 2010 Regional Economic Outlook, the emerging economies in central and eastern Europe are projected to grow by 3¾ percent this year and next—a relief after the 6 percent decline in 2009.
But the boom years before the crisis had left much of the region addicted to foreign-financed credit growth, making it very vulnerable to a disruption in capital inflows. So, as the region emerges from the crisis, the big question is how do we avoid a repeat?
A Marriage Made in Heaven or Hell: Monetary and Financial Stability
Price stability has long been enshrined as the main objective of monetary policy, and, with that, gone are the days of high and volatile inflation. Monetary stability seems almost a given today. However, the global financial crisis revealed that, by focusing on price stability, monetary policy frameworks might not always sound the alarm when financial stability comes under threat. In his latest blog, José Viñals reflects on the monetary policy lessons that emerged from the global financial crisis and the need for a "happy marriage" between the goals of price stability and financial stability.
Emerging Market Countries and the Crisis: How Have They Coped?
The varied experience of emerging market economies during the global financial crisis underscores an important lesson: good policies beget good outcomes. Investing during good times to develop a sound policy framework that delivers stronger fundamentals and lower vulnerabilities yields large dividends during crises. In the current crisis, low-vulnerability countries had lower output declines, more space to undertake countercyclical policies, and quicker recoveries.
Life after the Crisis: A Perspective from Emerging Europe and Central Asia
The Program of Seminars takes place outside the formal framework of the Annual Meetings. But to many people, they were the main reason for making the trip to Istanbul.
The program’s October 4 offering included a first-hand perspective of how three emerging market countries—Turkey, Slovakia, and Ukraine—have weathered the crisis. We also got a glimpse of the methodology the IMF is using to become better at sounding the alarm if it sees new vulnerabilities building up in the world economy.
More Europe, not less
Ukraine was running a high fiscal deficit at the outset of the crisis, which made it vulnerable when the global economy came unstuck, Vice Prime Minister Hryhoriy Nemyria said. The lack of progress on structural reforms had reinforced the external shock, and had brought home just how dependent the country was on just one sector, steel, which accounts for 40 percent of all export earnings. […]