Recovery from the deepest recession in 60 years has started. But sustaining it will require delicate rebalancing acts, both within and across countries. IMF chief economist Olivier Blanchard writes in our lead article that the turnaround will not be simple. The crisis has left deep scars that will affect both supply and demand for many years to come. This issue of F&D also looks at what’s next in the global crisis and beyond. We look at ways of unwinding crisis support, the shape of growth worldwide after the crisis, ways of rebuilding the financial architecture, and the future of reserve currencies. Jeffrey Frankel examines what’s in and what’s out in global money, while a team from the IMF’s Research Department looks at what early warning systems can be expected to deliver in spotting future problems. In our regular People in Economics profile, we speak to Nobel prize winner Daniel Kahneman, whose work led to the creation of the field of behavioral economics, and our Picture This feature gives a timeline of how the Bank of England’s policy rate has fallen to its lowest level in 300 years. Back to Basics gives a primer on monetary policy, and Data Spotlight looks at how the crisis has affected the eastern European banking system.
Mr. Eduardo Borensztein, Mr. Peter Wickham, Mr. Mohsin S. Khan, and Ms. Carmen Reinhart
This paper analyzes global commodity trends and concludes that the marked decline in real commodity prices of the past decade should be regarded as largely permanent and irreversible. The authors contend that the analysis of commodity prices should be extended to include the role of the breakdown of major international commodity agreements. In addition, the authors analyze how developments in the former Soviet Union have affected commodity supply conditions.
The international economic and financial situation changed substantially during 1986 and the early part of 1987. Economic growth in the industrial countries1 slowed, real primary commodity prices continued to decline, external imbalances widened despite ongoing adjustments in real trade balances, protectionist pressures and actions intensified, and the external financial situation of many developing countries deteriorated further. These developments cast a shadow on the more positive aspects of the situation, including continued progress in controlling inflation, relatively rapid output growth in many non-fuel exporting developing countries, further downward movements in interest rates, the steps taken to strengthen the coordination of policies among the major industrial countries, and the attainment of a pattern of exchange rates among key currencies that better reflects economic fundamentals.
The performance of the world economy during 1978 and the first half of 1979 was characterized by a mixture of gains and disappointments. On the one hand, the evolution of domestic demand in several of the largest industrial countries proceeded broadly along the lines of a strategy of policy that had been agreed in various international forums, and this development was beneficial to the distribution of external current account balances among individual countries within the industrial group. The sizable changes in exchange rates for major currencies that occurred during 1978 also made for a better pattern of international payments relationships among the principal industrial countries, and a substantial improvement in the pattern of their current account balances did, indeed, emerge in the first half of 1979. Further, the more orderly conditions prevailing in foreign exchange markets during the current year to date attest to the calming impact of the internationally coordinated measures taken, in combination with adjustments of domestic policy, in the latter part of 1978.