...M O N E T A R Y F U N D INTERNATIONAL MONETARY FUND Research Department Global Imbalances: In Midstream? Prepared by Olivier Blanchard and Gian Maria Milesi-Ferretti1 Authorized for Distribution by Olivier Blanchard December 22, 2009 Disclaimer: The views expressed herein are those of the author(s) and should not be attributed to the IMF, its Executive Board, or its management. Before the crisis, there were strong arguments for reducing global imbalances. As a result of the crisis, there have been significant changes in saving and investment patterns across the world and imbalances have narrowed considerably. Does this mean that imbalances are a problem of the past? Hardly. The paper argues that there is an urgent need to implement policy changes to address the remaining domestic and international distortions that are a key cause of imbalances. Failure to do so could result in the world economy being stuck in “midstream,” threatening the sustainability of the recovery. JEL Classification Numbers: E21, E22, F32, F33, F36, F41 Keywords: Current account deficits, saving, investment, portfolio choice. Authors’ E-mail Addresses: oblanchard@imf.org ; gmilesiferretti@imf.org 1 One of the series of “Seoul papers” on current macro and financial issues. We are grateful to Caroline Atkinson, Nicoletta Batini, Tam Bayoumi, Christian Broda, Matthieu Bussière, Paul Cashin, Nigel Chalk, Menzie Chinn, Stijn Claessens, Charles Collyns, Carlo Cottarelli, Irineu de Carvalho Filho...
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...India and the Global Financial Crisis What Have We Learnt? 1 - Duvvuri Subbarao _________________________________________________________ Thank you for inviting me to deliver the 2011 K R Narayanan Oration. It is an honour to which I attach a lot of value. President Narayanan 2. Late President Narayanan was a distinguished diplomat, a reputed parliamentarian, a capable minister and above all an erudite scholar. Born at the very bottom of India’s social pyramid, he rose on to occupy the highest office in the country with no assets other than hard work, integrity and humility. ‘A working President’, as he described himself, he never allowed dogma to overwhelm his beliefs and convictions. 3. President Narayanan was in office from 1997 to 2002, a time when globalization, as we are experiencing it in the current times, was taking root. At the banquet he hosted for the visiting US President Bill Clinton in New Delhi in March 2000, President Narayanan remarked: “Mr. President, we do recognise and welcome the fact that the world has been moving inevitably towards a one-world... But, for us, globalization does not mean the end of history and geography, and of the lively and exciting diversities of the world.” This was a thoughtful remark. As much as globalization may be inevitable, history and geography need not be destiny. If we learn the lessons of experience, we will not repeat the same mistakes. This indeed is the topic for my 1 K.R. Narayanan Oration by Dr. Duvvuri...
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...Economic Context of Management Name: Pradeep Essay: “The Australian government has been running with too large a fiscal deficit during the past 4 years particularly in light of their projections for the Australian economy which were made when the first stimulus package was announced in 2008". Discuss this assertion and the consequences of this fiscal deficit on economic activity during the past 4 years. What are the implications of your analysis for Australia's fiscal policy during the next 3 years? EXECUTIVE SUMMARY Global Financial Crisis (GFC) evolved from its origin in subprime mortgage crisis of United States and affected almost every country in the world. Australia entered into GFC with a strong position, as compared to the other OECD countries. Australian government implemented stimulus packages in order to deal with the situation. This reports looks at the consequences of the fiscal deficit on economic activity and its implications for Australia’s fiscal policy. Its direct impact on Australia was small – mostly increases in bank borrowing costs The case for fiscal stimulus was based on Keynesian model, which proposes a short term government spending to stimulate the economy during the recessionary period. However, Basic Keynesian model assumes that the exchange rate is fixed. The analysis shows that significant contributor for GDP (expenditure) was net exports over that period, not the consumption. This increase in demand was due to the depreciated...
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...Q1) The U.S. saving and loan crisis is the biggest banking downfall after the great depression in 1929, the biggest percentage arise from Texas state saving failure. Saving and loans used to be banks that low interest rate to help people with limited income, at the same time the federal bank require these banks to funds mortgage by there saving account. In the 1980’s saving accounts became unpopular and the banks loss there costumers. The banks asked the Congress to remove the restriction on loans to value ratio, then they start rising their capital by investing in the commercial loans and speculative real estate, at the began it increased their assets by huge amounts, in some Texas banks it increased by 100% each year. In 1983, 35% of the banks were unprofitable and 9% went bankrupts, the federal insurance gradually run out of money and the banks continue providing bad loans until 1989 the Congress and the president informed about this problem and they interfered in it and solve by providing $50 billions to close failed banks and stop the losses, then the formed new government agency called the resolution trust corporation RTC to deal with miss done by these banks and to refunds the depositors. (1). In easy way we can say the reasons of the U.S 1980’s crisis is the absence of efficient oversight, these banks gave loans to every one without taking concern of how they will pay it back, the main reason in our view is that people could not pay back there loans. (2). The same problem...
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...American Economy: How Saving is Saving Us From Inflation Mark Nasca „12 Colgate University April 30th, 2012 Abstract Following the Great Recession (2007-09), the Federal Reserve (Fed) utilized monetary policy instruments that had never been used in previous economic recoveries. With interest rates near zero, the Fed undertook rounds of quantitative easing (QE), a non-standard policy, in an attempt to stimulate the economy and help bring the nation out of the recession. In this study, the theoretical model presented by Nasca (2011) will be expanded to show that price level can be stabilized when saving and the money supply increase in tandem, all else constant. Following the theoretical discussion, this study will then utilize an intertemporal model with heterogeneous agents to describe the U.S. economy in order to analyze factors affecting consumer saving decisions when QE policies are enacted following an economic crisis. The goal of this model is to show how the saving decision is affected by the enactment of QE in a crisis environment, given the lower prevailing interest rate scenario and elevated levels of economic instability. This study finds that the increase in saving rate observed in the unfavorable rate environment can potentially be attributed to the increased uncertainty in future income expectations and heightened levels of risk aversion that are characteristic of a post-crisis economy. This serves as a theoretical justification for why saving has risen during this...
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...Edited by Coen Teulings and Richard Baldwin CEPR Press a A VoxEU.org Book Secular Stagnation: Facts, Causes, and Cures A VoxEU.org eBook Centre for Economic Policy Research (CEPR) Centre for Economic Policy Research 3rd Floor 77 Bastwick Street London, EC1V 3PZ UK Tel: +44 (0)20 7183 8801 Email: cepr@cepr.org Web: www.cepr.org ISBN: 978-1-907142-77-2 © CEPR Press, 2014 Secular Stagnation: Facts, Causes, and Cures A VoxEU.org eBook edited by Coen Teulings and Richard Baldwin CEPR Press abcde Centre for Economic Policy Research (CEPR) The Centre for Economic Policy Research (CEPR) is a network of almost 900 research economists based mostly in European universities. The Centre’s goal is twofold: to promote world-class research, and to get the policy-relevant results into the hands of key decision-makers. CEPR’s guiding principle is ‘Research excellence with policy relevance’. A registered charity since it was founded in 1983, CEPR is independent of all public and private interest groups. It takes no institutional stand on economic policy matters and its core funding comes from its Institutional Members and sales of publications. Because it draws on such a large network of researchers, its output reflects a broad spectrum of individual viewpoints as well as perspectives drawn from civil society. CEPR research may include views on policy, but the Executive Committee of the Centre does not give prior review to its publications. The opinions expressed...
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...eighties India’s average rate of economic growth rose to 5.6 per cent per annum and further in the nineteenth and up till 2002-03 (i.e. in 12 years period). India’s average growth rate went up to 6.2% per annum under liberalisation and globalisation of the Indian economy. But since 2004 to FY 2007-08 India’s average annual growth rate of GDP rose above 9 per cent per annum. In 2008-09 while the advanced developed countries were experiencing recession (i.e. negative growth), India succeeded in achieving 6.7 per cent growth in 2008-09 which further rose to 8.4 per cent in 2009-10 and 2010-11. However, for the reasons explained later, estimated rate of growth of GDP in 2011-12 fell to 6.5 per cent and for 2012-13 also India’s growth rate is again estimated by Reserve Bank of India to be 6.5 per cent.Rate of Domestic Saving and Fixed Capital FormationNow the question is how do we account for such a high growth in GDP from 2004-05 to 2010-11. Growth depends mainly on rate of saving and investment (or, in other words, on rate of capital formation), and improvement in technology or capital output ratio. In India such as other emerging economies, China, Indonesia and South Korea, it is increase in rate of saving and investment (i.e., rate of capital formation) that brought about a sharp growth in GDP since 2004. Rates of saving and capital formation and GDP growth are given in Table 42.3 Prior to 2003-04 rate of saving in India since 1991 when economic...
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...Supervisor: | | | Department of …………………………… January 2014 Abstract How did the Subprime Crisis, a small problem of U.S. financial markets, affect the entire global banking system? The aim of this paper is to analyze the effect of the subprime crisis on the banking sector in Europe, with a close attention on the case of Spain. Spain is currently facing the worst crisis ever experienced in its financial history, so it would be interesting to analyze what is the real situation of the banking sector and what will be the reforms that could lead to a consolidation of the financial systems. The strengths and weaknesses of the financial sector will be analyzed in order to see the changes needed to maintain its competitive position. The first part of the paper will briefly explain the subprime crisis, origins and impact on the financial world as new form of contagion. In the second chapter the consequences of the subprime crisis in the Spanish banking sector will be described. The last chapter of the thesis will present an analysis of the reforms made, using legal intervention. It will be concluded with a general point of view regarding the present situation of the Spanish banking system, the potential results of the current measures and the perspectives of new reforms. Contents 1 | Introduction | | 2 | Introducing the Subprime Crisis i. The subprime crisis: origins and evolution ii. Implications of the mortgage bubble The Spanish Banking sector: Before and...
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...POLYTECHNIC UNIVERSITY OF THE PHILIPPINES COLLEGE OF SOCIAL SCIENCES AND DEVELOPMENT DEPARTMENT OF ECONOMICS Sta. Mesa, Manila In Partial Fulfillment of the Requirements for the Subject Economics of Money and Banking Effects of Selected Domestic Interest Rates (Treasury Bill Rates, Savings Deposit Rates and Lending Interest Rates) to Exchange Rate in the Philippines from 1990 up to 2012 By: Caalam, Marissa R. Lunar, Jermaine B. Maligro, Merriam T. Mendoza, Vannesa Aira T. Valenzuela, Jasper Clarence M. BSE 3-2 October 15, 2013 CHAPTER 1 THE PROBLEM AND ITS BACKGROUND Introduction The relationship between interest rates and exchange rates has long been a key focus of international economics. Most standard theoretical models of exchange rates predict that exchange rates are determined by economic fundamentals, and one of this is the interest rate differential between home and abroad. According to Mundell-Fleming model, an increase in interest rate is necessary to stabilize the exchange rate depreciation and to control the inflationary pressure and also helps to avoid many adverse economic consequences. The following are the effects of the domestic interest rates. First, higher domestic interest rates raises the demand for deposits, and the money base. Second, firms need bank loans to finance the wage bill, which reduces output when domestic interest rates increases. Lastly, higher interest rates raise the government’s fiscal burden, and, therefore, can lead to a...
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...today, Philadelphians elected me to serve as their 98th mayor. It was a high privilege and honor to take the oath of office. In my first address as mayor, I spoke of our city’s great potential and the need for new ideas and bold action. I set aggressive goals to cut the city’s school dropout rate, to increase the number of Philadelphians completing college and to grow our city by 75,000 residents. Multimedia Mayor Nutter Addresses the City's Budget Crisis WATCH Mayor Nutter Addresses the City's Budget... Mayor Nutter Talks to Media After City Budget Address WATCH Mayor Nutter Talks to Media After City Budget... More Multimedia Achieving them, I said, would require a new sense of shared hope, commitment and sacrifice from everyone because we all have a role to play in the renaissance of our great city. In the last 10 months, I’ve seen more hope and optimism about what we can achieve in Philadelphia and the region. Our beloved Phillies are winners and so is this shining city of parks, history, creative people and vibrant neighborhoods. In January, when I invited everyone to come to City Hall for an open house, you came in the thousands and told me of your pride in the city and hopes for a prosperous future. In April, more than 15,000 Philadelphians removed 2.5 million pounds of trash from their neighborhoods. And every day this year, public safety has been Job No. 1. We’ve developed an aggressive crime fighting strategy. We’ve reduced homicides and the...
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...FACING THE ECONOMIC CRISIS IN THE UNITED STATES: THE CAUSES AND SOLUTIONS Prepared for Kaplan University GB512 Business Communication Dr. Sue Pettine Prepared by Katherine M. Moore Student September 22, 2011 Contents Executive Summary……………………………………………………… 3 Introduction …………………………………………………………………. 3 Background……………………………………………………………………. 3 Potential Problems and Solutions ………………………………………………. 5 Conclusion and Recommendation ……………………………………………… 7 References ……………………………………………………………………. 7 EXECUTIVE SUMMARY The purpose of this research proposal is to take a look at the economic crisis in the United States. Our country is currently facing one of the worst crises since the Great Depression. Because of this financial crisis many people are facing many anxieties today. In order to work on a solution for this dilemma, we must first admit that we are in a dreadful predicament. This is not the time to disregard the economic setback. We must take a look at our financial situation not only in the United States but globally as well. When a nation is in a crisis there is a tendency to shift the responsibility on just one person. In this research proposal we will look at the economy as a whole. We will tackle the many hard questions that arise when a crisis hit. Some of the hard questions that we will...
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...Capital account convertibility of the rupee is a distant dream because macro economic parameters have to be stable before it is implemented. The low current account deficit should be sustained and the fiscal deficit needs to be contained. * Leads to free exchange of currency at lower rates and an unrestricted mobility of capital * Beneficial for a country because inflow of foreign investment increases * The flip side, though, is that it could destabilise an economy due to massive capital flows in and out of the country “We are surely on that path but it will take a few more years. The rupee as a currency should be more frequently traded internationally,” said Dwijendra Srivastava, chief investment officer (debt) at Sundaram Mutual Fund. India’s external sector was vulnerable till recently, with the current account deficit above the comfort level of 2.5 per cent of the gross domestic product. It was 4.2 per cent of gross domestic product (GDP) in 2011-12 and rose to 4.7 per cent in 2012-13. After severe curbs, including restrictions on import of precious metals, the deficit fell to 1.7 per cent in 2013-14. In 2014-15, it continued to stay low, with the third quarter showing a deficit of 1.6 per cent. The fiscal situation remains fragile. The turning point was in 2007, the year of the global financial crisis. The fiscal deficit of the central government has been 4.6-6.5 per cent in the past six years, before falling to 4.1 per cent in 2013-14. The government is...
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...The US subprime crisis era from 2007 to 2009 posed an unprecedented challenge to the US Federal Reserve (“the Fed”) as well as the outgoing Bush administration and incoming Obama administration. US Subprime Mortgage Crisis Crisis: Policy Reactions (“the Case”) provides us a glimpse of the actions by the Fed, the two administrations, as well as the support and criticisms for those actions. The US as a whole generally disregarded “common sense” leading up to the downturn and crisis. An overheating economy had been ignored for too long, loans were extended to individuals and entities with little to no income and who lacked the sophistication to understand the nuances and ramifications of new financial products created to yield higher returns for investors with voracious investment appetites, and the worst fears of laissez-faire economics were realized due to unregulated business practices with little to no oversight or full understanding of those new financial products. The Case highlights the tools used by the Fed in monetary policy during the economic downturn and crisis in the housing and commercial real estate markets and can be reflected on in terms of standard utilization as well as non-standard utilization. With respect to standard utilization of monetary policy, the Fed can influence the Fed Funds Rate, which is the rate at which commercial banks and other depositary institutions can borrow money from the Fed. The Fed members meet at the Federal Open Market Committee...
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...lots major savings. Congealing apart some not surprising excitability as the Federal Reserve of US starts to cut down accessory monetary rules, market opinion has bettered (Taylor, 2011). We are experiencing good development in the US; Japan's rules appear to be bearing an impression, China's development stays rich, and Euro domain growth is demonstrating some signs of blaming up while the trusting system's constancy is bettering – though obviously I concern the wood once I say this. In issuing market savings, substantial advance has been arrived at in amending their receptivity and resiliency to commercialize fluctuations. Two chief problems lay beforehand for the global savings, and they are ace's business leadership discussed over in Sydney. G20 Finance government Ministers chaired by Australia's financial officer Joe Hockey need to accomplish development and create employment. They might well concur on a G20 development objective. Business leadership – by the B20 business leadership forum - can assist them formulate and attain their development schemes. The G20's designs to further private sector development will hopefully adjust to our aspects, and I acknowledge Treasurer Hockey is devoted to compounding G20-business participation. (Pomfret, 2012) Economic development, badly, reckons on the accessibility of credit. One of the main checks to the elaboration of quotation is the over handed of doubtless about ordinance. For the clientele, and for the global saving, the better...
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...during the global financial crisis has highlighted its flexibility. This flexibility, in part, arises from transformations undertaken in response to the Asian financial crisis a decade earlier.” Student Name: Eric Rodrigues Student Name: Mehmet Edib Unal Introduction The Asian Financial Crisis occurred during the year 1997-1998, and is explained well in brief by Galina Hale “East Asian countries experienced severe banking crises. Nonperforming loan ratios skyrocketed because of prior excessive risk taking and most banks had to be recapitalized by their governments.” (Hale 2011, p.3) After ten years, The Asian Financial Crisis was followed by The Global Financial Crisis in 2008. “The precise genesis of the global crisis remains subject to debate. (Lin 2012, Treichel 2012, p.3) “We will argue that global imbalances were the result of the large excess demand in the U.S. over an extended period—the financing of which was made possible by the reserve currency status of the US dollar. “This excess demand resulted from both the public debt” and “the overconsumption by households.” (Lin 2012, Treichel 2012, p.3) “As shock waves of the global financial crisis (GFC) reached East Asia in autumn 2008 immediately after the collapse of Lehman Brothers in September, the region faced the task of evaluating and reassessing the economic cooperation efforts of the previous ten years” (Katada 2011, p.274) Thus by evaluating and reassessing the economic cooperation of those previous...
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