“Macro…, what?!” The New Buzz on Financial Stability

When carefully implemented, macroprudential policy can become a cornerstone of financial stability policy. The dictionary of financial lingo has been given an important new entry.

Youth Speaking Out

Young people, hardest hit by the global economic downturn, are speaking out and demanding change. Coming of age in the Great Recession, the world’s youth face an uncertain future, with lengthening job lines, diminished opportunities, and bleaker prospects that are taking a heavy emotional toll. The March 2012 issue of Finance & Development magazine looks at the challenges facing young people today.

Macroprudential Policy—Filling the Black Hole

When the global financial system was thrown into crisis, many policymakers were shocked to discover a gaping hole in their policy toolkit. They have since made significant progress in developing macroprudential policy measures aimed at containing system-wide risks in the financial sector. Yet progress has been uneven. Greater efforts are needed to transform this policy patchwork into an effective crisis prevention toolkit. Given the enormous economic and human cost of the recent financial debacle, we cannot afford to miss this opportunity for substantial reform. We need further collective efforts to fill the policy black hole. It is our best chance of avoiding future crises.

An Important Starting Point—with One Gap

I had one major source of unhappiness with last week’s conference on macroeconomic policies in the wake of the financial crisis: the participants were largely silent about the dismal outlook in the advanced economies for the next several years. With the exception of that one critical omission, I was impressed by the discussion. One striking feature was the consensus that there is no consensus. The crisis has, appropriately, made macroeconomists and policymakers humble about what we know. There were, however, some specific issues on which there was, if not unanimity, considerable agreement.

The Future of Macroeconomic Policy: Nine Tentative Conclusions

The global economic crisis taught us to question our most cherished beliefs about the way we conduct macroeconomic policy. Earlier I had put forward some ideas to help guide conversations as we reexamine these beliefs. I was heartened by the wide online debate and the excellent discussions at a conference on post-crisis macroeconomic policy here in Washington last week. At the end of the conference, I organized my concluding thoughts around nine points. Let me go through them and see whether you agree or not.

Exploring Economic Policy Frontiers After the Crisis: 2010 IMF Research Conference

The crisis has forced economists and policy makers to go back to their drawing boards. Where did they go wrong, and what implications does the crisis have for both macroeconomic theory and macroeconomic policy making? This was the topic of this year’s IMF Jacques Polak Research Conference. The twelve papers presented at the conference provided rich fodder for discussion. Here, Olivier Blanchard shares some flavor of the major themes, including: (i) the increased attention to fiscal policy; (ii) the scope for monetary policy to lessen the adverse ‘real economy’ effects of financial disruptions; (iii) the role of international capital flows in weakening financial stability; and (iv) the prominence of regulatory issues and the interplay with the real economy.

Macro-Prudential Policies: Putting the “Big Picture” into Financial Sector Regulation

The devastating impact of the global financial crisis created a consensus that pre-crisis financial regulation didn’t take the “big picture” of the system as a whole sufficiently into account and, as a result, supervisors in many markets “missed the forest for the trees.” In other words, they did not take into account the macro-prudential aspects of regulation, which has now become the focus of many authorities. Macro-prudential policies were the focus of discussions in Shanghai earlier this week, where The Peoples’ Bank of China hosted conference titled Macro-Prudential Policies: Asian Perspectives, that brought together central bankers and senior financial officials around the world. At the conference, there was wide agreement that the first step in designing macro-prudential policies ought to be a convergence of views regarding the objectives of such policies.

Toto, we’re not in Kansas anymore: Exploring the Contours of the Financial System After the Tornado

Just as a tornado in Kansas transplanted Dorothy and, her dog, Toto from familiar comforts to the unknown land of Oz, the global crisis has led many to wonder what has become of the global financial system and, more importantly, what will it look like next. Is the wicked witch of the West—excessive risk taking and leverage—really dead? Now, as the storm subsides, there is time to speculate about what the future financial sector might look like. Here, Laura Kodres blogs about a new Staff Position Note she co-authored with Aditya Narain that attempts to discern the contours of this new financial landscape.

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