IMF Weekend Read

 

Dear maria, In today's edition, we highlight: Monetary policy lessons from past crises Financial systems and climate risks Retreating house prices Inequality and credit card rewards

MONETARY POLICY Central Bankers Must Learn Lessons From Past Crises (Credit: Adobe Stock / IMF) The global inflation surge that abruptly ended decades of moderating price gains came at a unique confluence of crises, Gita Gopinath, the IMF’s First Deputy Managing Director, writes in the latest issue of F&D. What lessons does this era offer for monetary policy? We might begin, she writes, with the lessons from the pandemic and war that are relevant for monetary policy, even if the world eventually moves back to an environment of low interest rates and low inflation. Most economists missed the inflation surge, and we need to understand why, and how monetary policy may have to change going forward. “But some crisis effects—high inflation, supply chain disruptions, greater trade barriers—may persist much longer, or intensify. That could challenge macroeconomic stability around the world, especially in emerging markets. How can we avoid this?” The more palpable risk of rapid inflation means it’s crucial to revisit the robustness of strategies such as running the economy hot and seeing supply shocks as temporary, Gopinath writes. "These strategies offer benefits, but also raise risks to price stability." Read the article

FINANCE & DEVELOPMENT New Directions for Monetary Policy The March edition of F&D Magazine focuses on New Directions for Monetary Policy. Authors include Gita Gopinath, Raghuram Rajan, Markus Brunnermeier, Masaaki Shirakawa, Christoffer Koch, Greg Kaplan, Giancarlo Corsetti, Michael Weber, Claudio Borio, and many more.

While the currency values of today’s economic powerhouses help maintain global financial stability, the currency systems in the 19th century were tied to precious metals and France played the stabilizing role. In the early 1800s, most countries tied their currencies to silver or gold, but Napoleon tied the French franc to both, which sparked the era of global bimetallism. In this podcast, IMF economist Johannes says this almost-forgotten episode shows that international cooperation is essential for a stable global monetary system.

CAPACITY DEVELOPMENT Climate Change Poses Financial Risks (Credit: Peter Gallagher/Unsplash) Climate change could affect the safety of individual financial institutions, impact the sustainability of vital financial services, and carry broad macro-financial stability implications, Tobias Adrian, Director of the IMF’s Monetary and Capital Markets Department, said in a speech in the Swiss city of Basel. “As climate change increasingly influences financial risks and shapes institutional and sector-wide vulnerabilities, enhancement of the risk assessment and prudential frameworks is a critical component of policy responses,” Adrian told a conference on capacity development in the financial sector organized by the IMF and Bank for International Settlements. Adrian added that webinars, virtual workshops, and online training would remain an important part of the Fund’s capacity development toolkit even as people are once again able to meet in person. Read an earlier blog by Adrian and co-authors to learn more about how policymakers can help to manage the climate risks impacting economies and financial systems.

Global housing markets are retreating after years of steady gains. The Chart of the Week shows widespread declines in inflation-adjusted housing prices for two-thirds of the countries with recent data from the Organisation for Economic Co-operation and Development. The moves underscore how housing markets are adjusting to rising interest rates as central banks try to contain inflation. How long the decline in prices continues will depend on whether the rate hikes by central banks have already curtailed inflationary pressures. See the interactive chart

Weekly Roundup SILICON VALLEY BANK IMF Welcomes Decisive Action The IMF has told media organizations that it welcomes the decisive action taken by authorities in the United States following the collapse of Silicon Valley Bank and another mid-sized lender and that it is monitoring the implications for financial stability. “The IMF welcomes the decisive steps taken by the Federal Reserve, FDIC, and US Treasury to address the systemic risks arising from recent bank failures in the US,” the Fund told Reuters. “IMF staff are following the evolving situation closely and assessing potential global financial stability implications.” UKRAINE Progress Towards Fund Program An IMF mission has held policy discussions with the Ukrainian authorities on their request for a Fund-supported program in the Polish capital of Warsaw. In a statement, Vahram Stepanyan, the IMF’s resident representative to Ukraine, said discussions were productive and good progress has been made towards agreement on a set of policies that could underpin a program. “Building on this progress, staff and the authorities expect to conclude the discussions in the coming days.” The discussions came less than a month after IMF Managing Director Kristalina Georgieva praised Ukraine’s strong performance under its monitoring program during a visit to Kyiv. ARGENTINA Stronger Action Needed To Safeguard Stability Argentina's authorities have reached an agreement with IMF staff on the fourth review under the country’s Extended Fund Facility. The agreement, which is subject to approval by the IMF’s Executive Board, which is expected to meet in the coming weeks, will provide access to about $5.3 billion. “Against the challenges of an increasingly severe drought, a stronger policy package is necessary to safeguard macroeconomic stability, address rising inflation and recent policy setbacks, as well as ensure achievement of underlying program objectives,” a statement said. AFRICA Political Economy's Importance Political economy should be top of mind when undertaking economic reforms, Georgetown professor Ken Opalo said in an online Africa Perspectives conversation with the director of the IMF’s African Department, Abebe Aemro Selassie. They agreed that it is paramount to understand the country-specific political, institutional and economic context for reforms to yield fruitful outcomes. STAFF PAPER Climate Change Costs Are Underestimated A new IMF staff paper finds that the economic cost of temperature increases since 2000 has been substantially underestimated because the propagation of weather shocks through production networks has been overlooked. The study examines the effect of weather fluctuations and extreme weather events on sectoral economic production and the transmission of weather shocks across sectors, countries and over time. While agriculture is the most harmed sector, sectors at later stages of the supply chain also suffer. STAFF PAPER Rewards Programs Worsen Inequality Credit cards with reward programs are responsible for redistributing $15 billion per year from the “have-nots” to the “haves,” according to a new IMF staff paper. Money goes from less to more educated people, poorer to richer, and high to low minority areas, widening existing disparities. Reward cards induce more spending, leaving so-called “naïve” consumers with higher unpaid balances. Banks incentivize the use of reward cards by offering lower interest rates than on comparable cards without rewards.

BACK TO BASICS What is a central bank?

What exactly do central banks do? Our latest Back to Basics video explains their key responsibilities and why they’re so important to our everyday life.

MARK YOUR CALENDAR

MARCH 21, 8 AM EST African Fiscal Forum IMF Managing Director Kristalina Georgieva will discuss social safety nets with European Commissioner for International Partnerships Jutta Urpilainen, Sierra Leone’s Minister of Finance Sheku Ahmed Fantamadi Bangura, and Zambia’s Minister of Finance Situmbeko Musokotwane at the start of the African Fiscal Forum. Watch on IMF Live

Thank you again very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.

Nick Owen Editor IMF Weekend Read nowen@IMF.org