Understanding Spillovers
IMF Blog, November 12, 2014
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Bibliographic details
- Authors: Olivier Blanchard, Luc Laeven, Esteban Vesperoni
- Published: November 12, 2014
Overview
- Authors: Olivier Blanchard, Luc Laeven, Esteban Vesperoni
- Date: November 12, 2014
- Context: The global crisis and the sluggish recovery since 2009 highlight the importance of understanding interconnections and risks in the global economy, notably as global trade and cross-border financial activities have increased.
- Purpose: Emphasizes the need to understand transmission channels of spillovers for both academic research and policymaking, given challenges in policy coordination following the 2009 crisis response.
Conference focus and themes
- Event: IMF’s 15th Jacques Polak Annual Research Conference, “Cross-Border Spillovers”
- Dates: November 14-15
- Scope:
- Understanding different channels through which shocks are transmitted among economies.
- Assessing how policies can mitigate spillover impacts.
- Examining challenges posed by market-driven outcomes and adequacy of national policy instruments.
- Exploring realistic possibilities for policy coordination.
Key sessions and contributions
- Keynote: Mundell-Fleming lecture by Hélène Rey (Professor of Economics, London Business School; Research Fellow at CEPR and NBER) on “global financial cycles and the extent of monetary policy independence of national central banks.”
- Papers: Discussion of 12 papers on:
- Transmission channels of cross-border spillovers from monetary and fiscal policies.
- Linkages in debt markets and trade integration.
- Policy instruments to manage capital flows and international policy cooperation.
- Conclusion: Economic Forum panel with Jean Boivin, Hector Torres, Maurice Obstfeld, and David Vines discussing cross-border spillovers and policy coordination.
Questions and research topics highlighted
- Impact of changes in US monetary policy on foreign bond yields, and variation by policy instrument.
- Differences in impact on the yield curve between conventional and unconventional policies.
- How unconventional monetary policy by the European Central Bank worked; its impact on Europe and the rest of the world; and relevant transmission channels compared to US UMP.
- Impact of government spending on the exchange rate and whether it induces exchange rate depreciations (i.e., ‘beggar-thy-neighbor’ effects).
- Whether sovereign debt defaults in one country trigger defaults in other countries, and effects on the cost of financing and incentives to default elsewhere.
- Conditions under which international spillover effects are Pareto efficient.
- Comparison of equilibrium with strategic policy setting at the global level versus equilibrium with global policy cooperation.
- Optimality of restricting international capital flows amid financial markets incompleteness and when prices do not induce socially optimal outcomes.
- Effectiveness of capital controls and how leaks (limited enforcement) affect potential effectiveness.
- Whether deeper trade integration through international input linkages amplifies cross-border spillovers.
- Whether fiscal and capital market integration can dampen transmission of leveraging/deleveraging shocks within a monetary union (i.e., Europe).
- Whether growth in countries with higher trade and financial integration fell more during the Great Depression.
Expected contributions and dissemination
- Aim: To bring together research from inside and outside the IMF to advance understanding of spillover channels and policy responses.
- Outcome: Research presented is expected to contribute to new policy thinking at the IMF and elsewhere.
- Accessibility: Papers posted online and an Economic Forum webcast available via www.imf.org.
Source: Understanding Spillovers (IMF blog post, November 12, 2014).