Global economy

Jason Furman, Jay C. Shambaugh , 29 April 2016

In terms of GDP and unemployment, the US’s recovery from the crisis was relatively rapid. This was in large part due to forceful fiscal policy conducted by the Obama Administration. This column surveys the lessons for other economies, which have seen less-convincing recoveries. Around the world, increased spending and tax cuts over the last eight years have had positive effects. Continuing recovery will require concerted action in these directions.

Galina Hale, Tümer Kapan, Camelia Minoiu, 28 April 2016

Since the Global Crisis, cross-border lending among banks and its role in the transmission of financial shocks have gained a lot of attention. This column describes evidence from direct and indirect lending exposures among a large number of banks. The findings show that a larger number of exposures to banks in countries experiencing a systemic banking crisis reduces profitability and the supply of new credit. Both direct and indirect connections have economically significant effects, supporting the notion that interconnected systems are prone to shock transmission.

Maurice Obstfeld, Rabah Arezki, Gian Maria Milesi-Ferretti, 13 April 2016

Oil prices have fallen sharply and remained persistently low, but the expected demand boost has not materialised. This column notes that when nominal interest rates are pinned at zero, lower inflation due to a drop in oil prices raises real interest rates, working against the traditional positive income effects. Dangers arise from the possibility of unanchored inflation expectations and dislocations – including corporate and sovereign defaults – that could spook already jittery financial markets. To combat such negative loops, demand support by the global community – along with a range of country-specific structural and financial-sector reforms – is urgent.

Alex Pienkowski, Joyce Miharu Saito, Suchanan Tambunlertchai, 28 March 2016

Initiatives to reduce public debt in low-income countries have made substantial progress over the past decade, but challenges remain and continue to evolve. This column presents the findings from a new IMF-World Bank report on these developments. Low-income countries have benefited from debt relief and favourable economic conditions, resulting in generally lower debt burdens and vulnerabilities. There has also been a shift in debt financing, with greater reliance on emerging market economies, international capital markets, and domestic sources. However, more recently, risks have begun to re-emerge necessitating fiscal prudence and improved debt management.

Alberto Caruso, Thomas Hasenzagl, Filippo Pellegrino, Lucrezia Reichlin, 22 February 2016

Recent data releases related to the Eurozone have been disappointing. This column argues that momentum from the long-delayed 2014-15 recovery is faltering because the Eurozone economy is affected, with a lag, by the US slowdown. The traditional, lagged relationship between the EZ and US business cycles – which disappeared in the aftermath of the Global Crisis – is now reasserting itself.

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