## Reflections on International Spillovers and Cooperation

_IMF News, November 1, 2018_

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## Bibliographic details
- Published: November 1, 2018

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### Introduction and Purpose
- Opening Remarks to 19th Annual Research Conference
- IMF First Deputy Managing Director David Lipton
- November 1, 2018
- Conference focus: international spillovers and cooperation; bringing together academics and policymakers to address these issues.

### Context and Risks to Global Integration
- Technological advances, rapid growth of trade, and the explosion of gross capital flows have produced cross-border integration over the past 75 years.
- Current threats to global interconnectedness highlighted:
  - an escalating tariff war
  - heightened restrictions on investment
  - concerns about intellectual property
  - risk of dismantling global supply chains
- Political developments are forcing attention on dislocations from increased trade and globalization, including broader discussions of inequality and stagnant middle class incomes, at least in the West.
- Emphasis: a renewed commitment to international cooperation is more essential than ever.

### The Growth of Trade — Findings and Implications
- Trade in goods and services increased from around 40 percent of global GDP in 1990 to about 60 percent now.
- Production has become fragmented across borders; a significant share of trade comprises intermediate goods and related services.
- Key implications:
  - Shocks are likely to spread more widely across borders and within countries due to reliance on parts and services from producers in many countries.
  - Example cited: the 2011 earthquake in Japan disrupted the automobile supply chain and produced global reverberations.
  - Once supply chains are established, imposing trade barriers can trigger a costly adjustment process; uncertainty alone may lead to adjustments in investment and trade patterns.
  - Technology transfer and intellectual property have been key elements of trade expansion; uncertainties about policies are casting shadows on investment.
  - The future of e-commerce may become an issue (example: debate about how online payment systems like China’s Alipay will or will not be allowed to expand across borders).

### Capital Flows and Financial Stability — Findings and Policy Questions
- Cross-border holdings of financial assets are now at around 200 percent of global GDP, compared with about 70 percent in 1995.
- Potential spillovers and financial stability risks have grown exponentially.
- Observations:
  - The Global Financial Crisis illustrated how interconnected counterparty risk threatened the world economy.
  - A “global financial cycle” can produce globally synchronized fluctuations in capital flows and asset prices.
  - Balance sheets of global banks are an important transmission channel for spillovers from monetary policy; going forward, balance sheets of asset managers may be the driving force of cross-border spillovers.
  - Since the crisis, advanced economy monetary policy (unprecedented loosening, then normalization and episodes like the Taper Tantrum) has had consequences for the rest of the world.
  - Capital flow boom-and-bust cycles remain a challenge; many countries face uncomfortable levels of corporate and sovereign debt.
  - The increased role of non-bank institutions is an important new development for policy consideration.
- Policy questions raised:
  - How to think about monetary, exchange rate, capital flow management, and macroprudential measures in a coherent and integrated way.
  - The Fund’s institutional view on liberalizing and managing capital flows will be integrated with a broader set of policy questions in collaboration with policymakers and academics.
- Current account imbalances:
  - The External Sector Report found that approximately half of last year’s global current account balances were excessive, and that they pose risks to global stability.
  - It is essential that countries work together to reduce them.

### International Cooperation Under Stress — Analysis and Recommendations
- Symbolism: conference logo (sailors’ knots) representing connections and cooperation; analogy to danger if knots come undone during storms.
- Achievements of cooperation to date:
  - coordinated monetary policies in the aftermath of the Global Financial Crisis
  - the response to the European debt crisis
  - financial reforms enacted under the umbrella of the Financial Stability Board
  - constructive regional collaboration (example: ASEAN)
- Current challenge:
  - Rise of distrust and discord, risk of fragmentation.
  - Need to hear voices of those left behind by global integration and do more to ensure benefits of globalization are retained and widely shared.
- IMF stance:
  - At the IMF annual meetings in Bali, the Managing Director reiterated the Fund’s call for a new multilateralism that is “more inclusive, more people-centered, and more results-oriented.”
  - The IMF supports efforts to reform parts of the multilateral framework that may be outdated or in need of modernizing, including with respect to trade.
  - Reform has been central to IMF work for the past 20 years, affecting governance, lending, policy advice, and analytic capabilities.
  - A results-oriented multilateralism must be based on a clear understanding of the facts on the ground; research and conferences are timely and important for this purpose.

### Institutional and Personal Acknowledgments
- Tribute to Maury Obstfeld for vision and intellectual leadership in addressing spillovers at the Annual Research Conference.
- Under his leadership, the Research Department prepared high-impact World Economic Outlook chapters on:
  - the post-crisis global economy
  - the wage and inflation puzzles
  - the macroeconomic effects of climate change
  - the weakness of global trade
- The External Sector Report has received greater prominence; the Research Department produced a trade paper with the World Bank and the WTO.
- Transition of leadership:
  - Gita Gopinath will take over as Economic Counsellor in the New Year.

*Reflections on International Spillovers and Cooperation — Opening Remarks to 19th Annual Research Conference, IMF First Deputy Managing Director David Lipton, November 1, 2018.*

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## References

- [David Lipton](http://www.imf.org/external/np/omd/bios/dl.htm)
- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Annual Research Conference](https://www.imf.org/en/News/Seminars/Conferences/2018/02/08/19th-annual-research-conference-on-international-spillovers-and-cooperation)
- [External Sector Report](https://www.imf.org/en/Publications/ESR/Issues/2018/07/19/2018-external-sector-report)
- [World Economic Outlook](https://www.imf.org/en/publications/weo)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2018/11/01/sp110118-international-spillovers-and-cooperation-opening-remarks_