Introductory Remarks by the First Deputy Managing Director at 23rd Jacques Polak Annual Research Conference

IMF News, November 10, 2022

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Canonical URL: Introductory Remarks by the First Deputy Managing Director at 23rd Jacques Polak Annual Research Conference

Occasion: 23rd Jacques Polak Annual Research Conference, welcome in person after "3 years".
Celebration of Maury Obstfeld’s contributions on the occasion of his "70th birthday".
Speaker: Gita Gopinath, First Deputy Managing Director, IMF.
Personal notes: speaker worked on the solution manual for Ken and Maury’s graduate textbook in the "summer of 1997" and received guidance on the role of chief economist when she joined in "2019".

Self-fulfilling currency crises:
- Central to second generation currency crises models.
- Argued crises can arise from self-confirming pessimism, not only inconsistent domestic policies (contrast with first generation models).
Open economy Keynesian framework (work with Ken Rogoff):
- Introduced intertemporal optimization by households and firms and welfare analysis into open economy dynamics relative to Mundell Fleming dynamics.
- Inspired research on monetary and fiscal policy effects in open economy setups.
Risks of global imbalances:
- Early emphasis on risks given growing complexity of financial markets.
- Repeated advocacy for flexible exchange rates.
Enduring attributes:
- Work described as remaining "as relevant today as when it was originally written" and noted for "curiosity, encyclopedic erudition, and dedication to challenging our understanding of economic phenomena".

Strengthening of the US dollar:
- Dollar at its highest level "in over 20 years".
- Sharp strengthening in a matter of months has sizable macroeconomic implications for almost all countries.
- For many countries, weakening of their currency compared to the US dollar has "made the inflation fight harder".
Financial fragility concerns:
- Risk from potential vulnerabilities in corners of the broader financial system, including "‘hidden leverage’ in non-bank financial institutions" outside the regulatory perimeter.
- Critical lack of data on these areas.
- Need to ensure the financial system’s "plumbing" can handle stress and that liquidity provision is available when needed.
Geo-economic fragmentation:
- Growing tensions over trade, investment, technology transfer, and national security undermining growth and trust in the global economic system.
- Since the war in Ukraine started, monitoring indicates that "around 30 countries have restricted trade in food, energy, and other key commodities".
- Improving cooperation and constructive resolution of disputes framed as a key challenge and priority.

Monitor currency movements and their spillovers:
- Recognize sizable macroeconomic implications of a rapidly strengthening US dollar.
- Address the inflationary consequences for countries with weakening currencies vis-à-vis the dollar.
Strengthen oversight and data coverage of non-bank financial institutions:
- Close data gaps on "hidden leverage" outside the regulatory perimeter.
- Keep a watchful eye on potential vulnerabilities in the broader financial system.
Ensure financial plumbing and liquidity backstops are adequate:
- Prepare for stress episodes with appropriate liquidity provision mechanisms.
Counter geo-economic fragmentation through cooperation:
- Prioritize improved cooperation and constructive dispute resolution to limit the negative effects of trade and investment restrictions.

Conference sessions to address the challenges highlighted, with presentations of novel research and panel discussions.
First session topic announced: currency areas and the dominance of the US dollar.
Chair for first session: Ceyla Pazarbasioglu, Director of the Strategy Policy and Review Department.

Introductory Remarks by Gita Gopinath, First Deputy Managing Director, IMF — November 10, 2022.