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.
As the global economics crisis abates, there is an emerging consensus that a better global financial safety net is needed to enable countries with good policies to insure against bad outcomes, especially when they are innocent by-standers caught in a financial turmoil. Last week the IMF took another step toward meeting this need by further enhancing its country insurance facilities. Reza Moghadam, head of the IMF’s Strategy, Policy, and Review Department, has authored this blog to coincide with a series of speeches about the reforms, including a scheduled speech at the Peterson Institute for International Economics next Monday. The blog outlines the two major changes: enhancements to our flagship insurance option—the Flexible Credit Line (FCL)—for countries with very strong policies and economic fundamentals; and the establishment of a new Precautionary Credit Line (PCL), which offers a new form of contingent protection for countries with some moderate vulnerabilities.