How the IMF can ‘raise its game’ on monetary policy advice

Worries about recession are rising, including in major advanced economies such as Germany and the US (Fatas 2019, Frankel 2018). There are also concerns that central banks may not have the tools to help economies avert downturns or moderate their impact. Policy interest rates remain near or even below zero in many economies despite years of expansion since the Global Crisis – limiting the room to cut rates – and whether unconventional monetary policies will be able to help much remains a matter of debate (Summers and Stansbury 2019). Policymakers in emerging markets are concerned about the spillovers from another round of easing in the major advanced economies.

In its latest report, the IMF’s Independent Evaluation Office – which operates at arm’s length from IMF management and the Executive Board – assessed the value provided by the IMF in its advice on unconventional monetary policies over the past decade. The report also puts forward recommendations for how the IMF could do better in its future advice on monetary policy issues that seem particularly relevant in view of recent stresses (Independent Evaluation Office 2019).

IMF corporate view

The IMF quickly developed a three-part ‘corporate view’ on unconventional monetary policies.

First, the IMF viewed unconventional monetary policies as essential to recovery in the major advanced economies and provided steadfast support for the use of these policies (Lagarde 2013). After these economies turned towards fiscal consolidation in 2010 – a move the IMF supported – the Fund underlined that supporting aggregate demand through monetary easing was all the more important. The Fund urged the ECB and the Bank of Japan towards more aggressive easing of monetary policies (Ball 2019).Second, the Fund advised that any risks to financial stability arising from unconventional monetary policies were better addressed through macroprudential policies rather than by backing away from accommodative monetary policies. Third, the Fund assessed unconventional monetary policies to be, on balance, good for other countries as well by contributing to the health of the global economy. It did, however, recognise – and take steps to address – the challenges posed to others, particularly emerging markets, that could be impacted by easy global liquidity and volatile market conditions.

Συνέχεια ανάγνωσης εδώ: www.weforum.org