{ "title": "IMF Survey : IMF Brings Together Top Economic Thinkers to Debate Crises", "publication": "IMF News, November 20, 2013", "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sores112113a", "canonical": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sores112113a", "overlayPath": "/en/news/articles/2015/09/28/04/53/sores112113a/index.md", "summary": "Great minds do not always think alike. And that is a good thing, especially when it comes to insights into paradigm-shifting events. An IMF conference provided such a forum to discuss recent research on financial crises.", "authors": [ "M. Ayhan Kose", "Rafael Portillo" ], "publishDate": "2013-11-20", "sections": [ { "heading": "Conference overview", "content": "- Event: The Fourteenth Jacques Polak Annual Research Conference, hosted by the IMF at its Washington, D.C., headquarters on November 7 and 8.\n- Purpose: Forum to discuss recent research on financial crises and honor Stanley Fischer’s contributions to economic research and policy.\n- Contributors: Leading economists and policymakers, including presentations and a concluding session featuring Larry Summers, Ken Rogoff, Stanley Fischer, Ben Bernanke, and Olivier Blanchard.\n- Framing observation: “Great minds do not always think alike,” highlighting the value of debate for paradigm-shifting events." }, { "heading": "Exchange rate regime: a central choice", "content": "- Key proposition (Paul Krugman): Likelihood of a confidence crisis greatly depends on the exchange rate regime; countries that retain their own currencies are less likely to face runs on their debt, and runs that do occur are likely to have expansionary effects on activity.\n- IMF staff findings (Atish Ghosh, Jonathan Ostry, Mahvash Qureshi): Countries with less flexible exchange rate regimes tend to face greater macroeconomic and financial vulnerabilities.\n- Empirical evidence (Kristin Forbes and Michael Klein): Large currency depreciations and major reserve sales help promote growth shortly after a crisis; interest rate increases appear to have the opposite effect.\n- Policy nuance (Emmanuel Farhi with Iván Werning): Temporary capital controls—even under a flexible exchange rate regime—can help smooth out capital-flow driven business cycles.\n- Policy implication: Exchange rate flexibility, reserves management, and calibrated capital-flow measures matter for crisis resilience." }, { "heading": "Structural and fiscal policies: lessons from past crises", "content": "- Japan case (Takeo Hoshi and Anil Kashyap): Delay in bank recapitalization and lack of structural reforms helped explain prolonged stagnation in Japan during the 1990s; these lessons are relevant for some European countries slow to undertake reforms.\n- Fiscal policy role: Papers document a potent role played by fiscal policy during the East Asian and Latin American crises; the stance of fiscal policy has been a major determinant of economic performance in peripheral European countries in recent years.\n- Regional improvement (Latin America): Presentations confirm that macroeconomic policy has improved considerably in many emerging Latin American economies, with monetary and fiscal policies increasingly becoming countercyclical.\n- Policy implication: Prompt bank recapitalization, structural reforms, and countercyclical fiscal policies strengthen recovery prospects." }, { "heading": "Following Fischer’s prescriptions and monetary innovations", "content": "- Fischer’s 2001 prescriptions (as discussed by Maurice Obstfeld): Emerging markets broadly followed recommendations of greater exchange rate flexibility, ample reserves, and moderate public debt levels—factors that helped them weather the global financial crisis.\n- Monetary policy research (U.S. Federal Reserve staff papers):\n - Hysteresis hypothesis: Depressed demand may have decreased potential output over time; expansionary monetary policies can be beneficial.\n - Forward guidance with thresholds: Fed’s use of forward guidance with thresholds has helped improve macroeconomic outcomes even when interest rates are constrained by the zero lower bound.\n- Policy implication: Exchange rate flexibility, reserve buffers, moderate public debt, expansionary monetary policy when warranted, and forward guidance are important tools in crisis management." }, { "heading": "Final session: crisis management insights from senior policymakers", "content": "- Ben Bernanke:\n - Emphasized historical perspective and parallels between the financial panic of 1907 and the recent crisis.\n - Identified key aspects of crisis management: liquidity provision, measures to restore public confidence in the financial system, and closure of regulatory gaps after the crisis subsides.\n- Stanley Fischer:\n - Three lessons from the global financial crisis: effectiveness of unconventional monetary policies such as credit easing; importance of quick action to fix banking and debt problems; role of macroprudential supervision to address systemic financial risks.\n - Noted difficulty of predicting the next crisis: “generals prepare for the last wear, economists prepare for the last crisis, and sometimes the last war is very similar to the next war, and sometimes it isn’t.”\n- Kenneth Rogoff:\n - Stressed early diagnosis of liquidity and solvency problems, using a medical analogy: delayed treatment of chronic conditions makes crises harder to remedy.\n - Argued that deep financial crises require forceful and innovative policy responses.\n- Larry Summers:\n - Raised the possibility of “secular stagnation” in the United States and that zero nominal interest rates may be a durable feature.\n - Called for more aggressive fiscal and monetary policies to lay foundations for durable growth.\n - Warning: “one has to be concerned about a policy agenda that is doing less with monetary policy than has been done before, doing less with fiscal policy than has been done before.”\n- Overarching message: Liquidity provision, rapid repair of banking/debt problems, macroprudential supervision, early diagnosis of solvency issues, and a willingness to use aggressive fiscal and monetary tools are central to effective crisis response." }, { "heading": "Key takeaways and policy recommendations", "content": "- Exchange rate and reserves:\n - Greater exchange rate flexibility and ample reserves can reduce vulnerability to confidence crises.\n - Temporary capital controls can be useful even with flexible exchange rates to smooth capital-flow driven cycles.\n- Financial sector actions:\n - Quick bank recapitalization and structural reforms prevent prolonged stagnation.\n - Macroprudential supervision is essential to address systemic risks.\n- Fiscal and monetary policy:\n - Countercyclical fiscal policy and forceful, innovative monetary policy (including unconventional tools and forward guidance) support recovery.\n - Be prepared to use more aggressive fiscal and monetary measures when structural conditions (e.g., potential secular stagnation) warrant.\n- Crisis management principles:\n - Provide liquidity, restore public confidence, close regulatory gaps, and diagnose liquidity versus solvency problems early.\n - Recognize limits of prediction and prepare adaptable policy toolkits.\n\nIMF Survey — By M. Ayhan Kose and Rafael Portillo, November 20, 2013\n\n---\n\n Content in this bundle\n\n- Charipdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Degpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Englishpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Farhipdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Forbespdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Hoshipdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Krugmanpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Maurypdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Ostrypdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Veghpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- Wilcoxpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- https://www.imf.org/en/News/country-focus\n- PRESS CENTER\n- IMF Research\n- Research Conference agenda and papers\n- Blog: Redefining Monetary Policy\n- Video: Stanley Fischer Interview\n- Webcast: Policy Responses to Crises\n- final session\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sores112113a" } ], "bullets": [ "[Markdown version](/en/news/articles/2015/09/28/04/53/sores112113a/index.md)", "[Structured JSON version](/en/news/articles/2015/09/28/04/53/sores112113a/index.json)", "[Bundle manifest](/en/news/articles/2015/09/28/04/53/sores112113a/bundle-manifest.json)", "Authors: M. Ayhan Kose, Rafael Portillo", "Published: November 20, 2013", "Event: The Fourteenth Jacques Polak Annual Research Conference, hosted by the IMF at its Washington, D.C., headquarters on November 7 and 8.", "Purpose: Forum to discuss recent research on financial crises and honor Stanley Fischer’s contributions to economic research and policy.", "Contributors: Leading economists and policymakers, including presentations and a concluding session featuring Larry Summers, Ken Rogoff, Stanley Fischer, Ben Bernanke, and Olivier Blanchard.", "Framing observation: “Great minds do not always think alike,” highlighting the value of debate for paradigm-shifting events.", "Key proposition (Paul Krugman): Likelihood of a confidence crisis greatly depends on the exchange rate regime; countries that retain their own currencies are less likely to face runs on their debt, and runs that do occur are likely to have expansionary effects on activity.", "IMF staff findings (Atish Ghosh, Jonathan Ostry, Mahvash Qureshi): Countries with less flexible exchange rate regimes tend to face greater macroeconomic and financial vulnerabilities.", "Empirical evidence (Kristin Forbes and Michael Klein): Large currency depreciations and major reserve sales help promote growth shortly after a crisis; interest rate increases appear to have the opposite effect.", "Policy nuance (Emmanuel Farhi with Iván Werning): Temporary capital controls—even under a flexible exchange rate regime—can help smooth out capital-flow driven business cycles.", "Policy implication: Exchange rate flexibility, reserves management, and calibrated capital-flow measures matter for crisis resilience.", "Japan case (Takeo Hoshi and Anil Kashyap): Delay in bank recapitalization and lack of structural reforms helped explain prolonged stagnation in Japan during the 1990s; these lessons are relevant for some European countries slow to undertake reforms.", "Fiscal policy role: Papers document a potent role played by fiscal policy during the East Asian and Latin American crises; the stance of fiscal policy has been a major determinant of economic performance in peripheral European countries in recent years.", "Regional improvement (Latin America): Presentations confirm that macroeconomic policy has improved considerably in many emerging Latin American economies, with monetary and fiscal policies increasingly becoming countercyclical.", "Policy implication: Prompt bank recapitalization, structural reforms, and countercyclical fiscal policies strengthen recovery prospects.", "Fischer’s 2001 prescriptions (as discussed by Maurice Obstfeld): Emerging markets broadly followed recommendations of greater exchange rate flexibility, ample reserves, and moderate public debt levels—factors that helped them weather the global financial crisis.", "Monetary policy research (U.S. Federal Reserve staff papers):", "Policy implication: Exchange rate flexibility, reserve buffers, moderate public debt, expansionary monetary policy when warranted, and forward guidance are important tools in crisis management.", "Ben Bernanke:", "Stanley Fischer:", "Kenneth Rogoff:", "Larry Summers:", "Overarching message: Liquidity provision, rapid repair of banking/debt problems, macroprudential supervision, early diagnosis of solvency issues, and a willingness to use aggressive fiscal and monetary tools are central to effective crisis response.", "Exchange rate and reserves:", "Financial sector actions:", "Fiscal and monetary policy:", "Crisis management principles:", "[Charipdf (PDF)](/-/media/websites/imf/imported/external/np/res/seminars/2013/arc/pdf/_charipdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[Degpdf (PDF)](/-/media/websites/imf/imported/external/np/res/seminars/2013/arc/pdf/_degpdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[Englishpdf (PDF)](/-/media/websites/imf/imported/external/np/res/seminars/2013/arc/pdf/_englishpdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[Farhipdf 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type=\"application/pdf\"}", "[Wilcoxpdf (PDF)](/-/media/websites/imf/imported/external/np/res/seminars/2013/arc/pdf/_wilcoxpdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)", "[PRESS CENTER](http://presscenter.imf.org/)", "[IMF Research](https://www.imf.org/en/news/search)", "[Research Conference agenda and papers](http://www.imf.org/external/np/res/seminars/2013/arc/index.htm)", "[Blog: Redefining Monetary Policy](http://blog-imfdirect.imf.org/2013/11/19/monetary-policy-will-never-be-the-same/)", "[Video: Stanley Fischer Interview](http://www.imf.org/external/mmedia/view.aspx?vid=2837226592001)", "[Webcast: Policy Responses to Crises](http://www.imf.org/external/mmedia/view.aspx?vid=2821294542001)", "[final session](http://www.imf.org/external/np/res/seminars/2013/arc/index1.htm)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "related": [ { "title": "Charipdf", "role": 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