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Policies to Rebalance the Global Economy After the Financial Crisis

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Author Info

  • Charles Freedman

    (Scholar in Residence, Economics Department, Carleton University)

  • Michael Kumhof

    (Research Department, Modeling Division, International Monetary Fund)

  • Douglas Laxton

    (Research Department, Modeling Division, International Monetary Fund)

  • Dirk Muir

    (Research Department, Modeling Division, International Monetary Fund)

Abstract

This paper considers some of the main risks and opportunities currently facing the world economy. Against a baseline forecast of October 2009, it first discusses a number of policy mistakes or policy failures that could lead to even worse outcomes than currently envisaged. It then describes the policy choices that would help to support global demand on a more sustainable basis while rebalancing its regional elements and therefore current accounts. Using the United States as an example, the paper also provides estimates of the long-term damage from protracted excessive fiscal deficits, and of the benefits from significant fiscal consolidation.

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Bibliographic Info

Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 6 (2010)
Issue (Month): 1 (March)
Pages: 215-252

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Handle: RePEc:ijc:ijcjou:y:2010:q:1:a:11

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  1. J. Galí & D. López-Salido & J. Vallés, 2003. "Understanding the effects of government spending on consumption," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  2. Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers 434, OECD Publishing.
  3. Thomas Laubach, 2003. "New evidence on the interest rate effects of budget deficits and debt," Finance and Economics Discussion Series 2003-12, Board of Governors of the Federal Reserve System (U.S.).
  4. Peter N. Ireland, 1999. "Sticky-Price Models of the Business Cycle: Specification and Stability," Boston College Working Papers in Economics 426, Boston College Department of Economics.
  5. Blanchard, Olivier J & Cottarelli, Carlo & Spilimbergo, Antonio & Symansky, Steven, 2009. "Fiscal Policy for the Crisis," CEPR Discussion Papers 7130, C.E.P.R. Discussion Papers.
    • Antonio Spilimbergo & Steve Symansky & Olivier Blanchard & Carlo Cottarelli, 2009. "Fiscal Policy For The Crisis," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 10(2), pages 26-32, 07.
  6. Laxton, Douglas & Pesenti, Paolo, 2003. "Monetary rules for small, open, emerging economies," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1109-1146, July.
  7. Douglas Laxton & Michael Kumhof, 2007. "A Party without a Hangover? On the Effects of U.S. Government Deficits," 2007 Meeting Papers 676, Society for Economic Dynamics.
  8. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  9. Eric M. Engen & R. Glenn Hubbard, 2004. "Federal Government Debt and Interest Rates," NBER Working Papers 10681, National Bureau of Economic Research, Inc.
  10. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  11. Michael Kumhof & Dirk Muir & Carlos de Resende & Jan in ‘t Veld & René Lalonde & Davide Furceri & Annabelle Mourougane & John Roberts & Stephen Snudden & Mathias Trabandt & Günter Coenen &, 2010. "Effects of Fiscal Stimulus in Structural Models," IMF Working Papers 10/73, International Monetary Fund.
  12. William G. Gale & Peter R. Orszag, 2004. "Budget Deficits, National Saving, and Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 101-210.
  13. Douglas Laxton & Susanna Mursula & Michael Kumhof & Dirk Muir, 2010. "The Global Integrated Monetary and Fiscal Model (GIMF)," IMF Working Papers 10/34, International Monetary Fund.
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Cited by:
  1. Benjamin Carton, 2012. "Monetary-Policy Tradeoff in Overlapping Generations DSGE Models," DEM Working Papers Series 028, University of Pavia, Department of Economics and Management.

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