## New Policy Frameworks for a Lower-for-Longer World

_IMF News, November 24, 2020_

## Source details

**Canonical URL:** [New Policy Frameworks for a Lower-for-Longer World](https://www.imf.org/en/news/articles/2020/11/24/sp112420-new-policy-frameworks-for-a-lower-for-longer-world)

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## Bibliographic details
- Published: November 24, 2020

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### Event and context
- Opening Remarks by Kristalina Georgieva, IMF Managing Director.
- Date: November 24, 2020.
- Purpose: Policy dialogue on the consequences of ‘lower for longer’ interest rates around the world and on reviewing central bank frameworks and tools to support recovery from the COVID-19 crisis and beyond.
- Panel: Richard Clarida, Philip Lane, Tobias Adrian; moderator Carolyn Wilkins.
- Noted research: Tobias Adrian’s new paper arguing that easier financial conditions today could encourage excessive risk-taking.

### Key findings and observations
- Central banks took forceful and timely actions during COVID-19, providing ample liquidity and easing monetary policy to maintain credit flow and avert financial catastrophe.
- Even before COVID-19, central banks struggled to boost economic activity and keep inflation at desired levels.
- Policies deployed over the preceding decade included promises to keep policy rates very low and large-scale asset purchases; these helped spur one of the strongest employment expansions in history that benefited many lower-skilled and minority workers.
- The abrupt collapse in activity from COVID-19 brought unemployment back into focus and added risks of skill deterioration and an increase in poverty, putting pressure on central banks to deliver more rate cuts and further accommodation.
- Many policy rates have been pushed to the floor, or below zero; even very long-term government bond yields are extremely low or negative, limiting the scope for government debt purchases to boost the economy.
- Many emerging markets face the same challenges with more limited room to cut interest rates; earlier in the year many of them tried asset purchases for the first time.

### New risks and tradeoffs
- New strategies and tools may speed recovery but may also produce new side effects, including important risks to financial stability.
- Traditional mitigation is financial regulation and macroprudential tools, but these may not be sufficient.
- Monetary policymakers face a tradeoff: a short-term boost to inflation and output versus a buildup of macro-financial vulnerabilities through excessive risk-taking.

### Policy implications and recommendations
- Central banks must be innovative and bold in renewing their frameworks and updating their toolkits to gain new ammunition to fight the crisis and support the recovery.
- Monetary policy should not and cannot do the job alone.
- Fiscal policy has a significant role to play: policymakers have stepped up fiscal support during the crisis and need to continue to do so to underpin a sustainable and inclusive recovery.
- Use of financial regulation and macroprudential tools remains important to mitigate financial-stability risks arising from easier financial conditions.

### Framing and priorities
- The IMF supports efforts to find the right policy tools and approaches to stimulate economies while managing the risks.
- Objective: help members overcome the crisis, restore growth and confidence, and tackle challenges on the road to a more resilient global economy.
- Emphasis on shielding millions of people from job losses and a prolonged downturn during the “long ascent” out of the crisis.

*Opening Remarks by Kristalina Georgieva, IMF Managing Director — November 24, 2020*

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## References

- [https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva](https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva)
- [Paper: "Low for Long" and Risk-Taking](https://www.imf.org/en/Publications/Departmental-Papers-Policy-Papers/Issues/2020/11/23/Low-for-Long-and-Risk-Taking-49733)
- [IMF Policy Dialogue: New Policy Frameworks for a "Lower-for-Longer" World](https://www.imf.org/en/News/Seminars/Conferences/2020/11/24/new-policy-frameworks-for-a-lower-for-longer-world)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2020/11/24/sp112420-new-policy-frameworks-for-a-lower-for-longer-world_