Gavin Goy, Jan Willem van den End, 20 April 2020

The lockdown of economies during the COVID-19 crisis creates conditions in which private sector demand may fall unboundedly while precautionary savings increase. This column argues that the crisis will push down the equilibrium real interest rate further, which has been trending down since the 1980s. However, higher government spending to combat the crisis could counter this trend. The overall effect on the equilibrium interest rate will depend partly on the extent to which the increasing public debt can provide the private sector with a safe asset for holding precautionary savings.

Carlos Vegh, Guillermo Vuletin, Daniel Riera-Crichton, Juan Pablo Medina, Diego Friedheim, Luis Morano, Lucila Venturi Grosso, 14 November 2018

Emerging markets are especially vulnerable to a myriad of domestic and external risks. This column develops a framework to classify these risks based on their predictability and, hence, their insurability. As the probability of relatively large events increases, it becomes more difficult to insure against such risks. In the extreme case in which countries face truly unpredictable and impactful events (or ‘black swans’), they must rely on building broad-based resilience or resorting to ex-post aid. 

Olivier Blanchard, 03 October 2014

Before the 2008 crisis, the mainstream worldview among US macroeconomists was that economic fluctuations were regular and essentially self-correcting. In this column, IMF chief economist Olivier Blanchard explains how this benign view of fluctuations took hold in the profession, and what lessons have been learned since the crisis. He argues that macroeconomic policy should aim to keep the economy away from ‘dark corners’, where it can malfunction badly.

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