Interview with IMF Chief Economist Maurice Obstfeld – IMF Finance & Development Magazine | December 2018

Source details

Canonical URL

Interview with IMF Chief Economist Maurice Obstfeld – IMF Finance & Development Magazine | December 2018

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Authors: GITA BHATT
• Published: December 1, 2018

Macroeconomic worries and long-term challenges

• Primary near-term concerns are "trade tensions and adjustment to differential financial conditions in an environment of much higher private and public debt than we had in the past."
• Longer-term issues highlighted:
  • "Wage and productivity growth is an issue."
  • The need to "spur innovation."
  • "We need a big rethink on educational investments everywhere."
  • Human capital investments early in life "have been shown to be critical to future success."
  • Later-life investments can "promote greater flexibility of workers, prolong working lives, and offset effects of aging populations."
  • Education and human capital reforms can mitigate adjustment issues related to technology and trade and address that "we just haven’t seen working people share in the gains from growth."
  • Political consequences: "There is now a sense in a lot of countries that incomes of working people have stagnated, that social mobility is lower, that opportunity is lower, that one’s children will not be better off and may indeed be worse off. These trends poison our politics."

United States–China relations and trade

• Disagreement dimensions: "Their disagreements go way beyond economics. They go fundamentally to the issue of global leadership."
• Strategic tensions:
  • The US role as global leader faces the challenge of managing a relationship that "at once offers opportunities for cooperation but also hazards of conflict."
  • Political system differences complicate relations: "how do you do it dealing with a system that is very, very different from yours politically?"
• Policy example: The Obama administration's approach via the TPP "included the flexibility for countries (including China) to join if they subscribed to the rules" as a strategy of influence.
• On confrontation: "Now the relationship seems to have become more confrontational, certainly in trade. I'm not sure confrontation is ultimately going to be productive because it puts front and center the idea that one country has to 'win' and be dominant, as opposed to creating a structure within which countries can coexist and conflicts are contained."

Surprising global developments during Obstfeld’s tenure

• Noted episodes:
  • "When I came in, China had recently devalued the yuan and changed its exchange rate regime, and asset markets were in turmoil." This led to worries about China's growth and stability that affected global asset markets "through the first half of 2016."
  • "The next surprise was the Brexit vote, which came in the middle of 2016."
  • "Very soon thereafter, we had the US presidential election, the outcome of which was also a surprise" and introduced a new dynamic of potential fiscal stimulus and trade renegotiation.
  • Background monetary policy move: "In December 2015 the Fed started raising US interest rates, and as it has kept at it, we have gotten into a period of much tighter financial conditions for emerging markets."

Research, policy impact, and crisis responsibility

• On research credibility: "You always want your research to be as solid and as credible as possible."
• Crisis role anecdote (August 2015):
  • During the China devaluation and market turmoil, Obstfeld served as the macroeconomist on the US Council of Economic Advisers while Jason Furman was on paternity leave.
  • President Obama asked, "Should I be worried?" Obstfeld replied, "No. The markets will find their footing, and for now I don't think the world is coming to an end." Secretary Lew agreed. The president then asked, "Can we ask these folks to stop tweeting?"
• Guiding principle: greater concern about giving "the right advice in a crisis situation, where you might make a severe mistake and a lot of people might suffer as a result."

Regaining trust in institutions and inclusion

• Diagnosis: Backlash against globalization and erosion of trust stem from exclusion: "There are large segments of populations that feel that the sort of economic and political consensus that we thought we had reached by the early 2000s has not worked for them."
• Communication and policy responses:
  • "There is a failure of communication. There must be more of an attempt to communicate, which becomes harder as even the media become more fragmented."
  • Policies must change to restore trust, with a focus on labor market outcomes for younger people: "it is going to be easiest to affect labor market outcomes for younger people, and that’s where a lot of effort and investment should go."

IMF institutional positions and adaptation

• On internal debate: "Our position has to change. And it does. We have a robust process of internal review and discussion and debate."
• Areas where research has affected IMF policy: "capital flows, issues of inequality, issues of fiscal policy, and on financial regulation."
• Method: "We learn from experience, we learn from research, and we do adapt."

Returning to academia and policy relevance

• Intellectual stance: "You should adapt your conclusions to reality rather than trying to adapt reality to the conclusions you previously reached."
• Shift in emphasis: Less patience for "purely theoretical debates"; importance of being "grounded in reality" and "think more about the nuances and country specificities."

Advice to successor and role of IMF

• Advice to incoming chief economist Gita Gopinath:
  • Learn from "amazing colleagues" and "an unparalleled store of knowledge in the Fund about our member countries."
  • Be prepared "not only to impart wisdom, but also to receive it in abundance."
• Evolving IMF role:
  • Need to "incorporate a longer-term perspective into our surveillance."
  • Current focus is "short or medium term," but the Fund should "better challenge authorities to think about the distant future, far beyond the political cycle."
  • The IMF has "a unique position as a long-lived institution with a good degree of independence from day-to-day politics" and should "learn to exploit it more effectively."

Interview has been edited for length and clarity; GITA BHATT, F&D editor-in-chief. Maurice Obstfeld retiring as chief economist at the end of 2018 and plans to return to the University of California, Berkeley, where he taught for 24 years. His successor will be Harvard University’s Gita Gopinath.

Content in this bundle

• إحداث تغيير ملحوظ
  • إحداث تغيير ملحوظ (Markdown version)
  • إحداث تغيير ملحوظ (PDF)
• Cambios Perceptibles
  • Cambios Perceptibles (Markdown version)
  • Cambios Perceptibles (PDF)
• Interview with IMF Chief Economist Maurice Obstfeld
  • Interview with IMF Chief Economist Maurice Obstfeld (Markdown version)
  • Interview with IMF Chief Economist Maurice Obstfeld (PDF)
• 変化を振り返る、オブストフェルド調査局長インタビュー、ファイナンス＆ディベロップメント2018年12月月号
  • 変化を振り返る、オブストフェルド調査局長インタビュー、ファイナンス＆ディベロップメント2018年12月月号 (Markdown version)
  • 変化を振り返る、オブストフェルド調査局長インタビュー、ファイナンス＆ディベロップメント2018年12月月号 (PDF)
• ОЩУТИМЫЕ ИЗМЕНЕНИЯ
  • ОЩУТИМЫЕ ИЗМЕНЕНИЯ (Markdown version)
  • ОЩУТИМЫЕ ИЗМЕНЕНИЯ (PDF)
• 改变未来 - 金融与发展 - 国际货币基金组织季刊
  • 改变未来 - 金融与发展 - 国际货币基金组织季刊 (Markdown version)
  • 改变未来 - 金融与发展 - 国际货币基金组织季刊 (PDF)