Otaviano's blog

by Otaviano Canuto

Once upon a (not long ago) time, there was a widely established set of blueprints for regimes of monetary and exchange rate policies expected to fit a full range of economies, and to serve as a guide for international monetary cooperation. That world is gone with the global economic crisis. As I explain in my new policy note, The Arrival of Asset Prices in Monetary Policy, a reshuffling of views on monetary and exchange rate policies will probably accompany new financial regulation.

Here are some of the issues I discuss in my note–and hope to discuss with you too:

(By Otaviano Canuto)

In PREM Note 141 released last week, Milan Brahmbhatt and Luiz Pereira da Silva point to several structural differences between the global economy today and in the 1930s that tend to differentiate the current crisis from the Great Depression. The larger weight of faster-growing developing countries in the current world economy is among those differences, one that bodes well for recovery prospects.[1]

As can be seen in Chart 1, there has long been a close correlation between economic cycles in developed and developing economies. More recently, since the early 2000s, this has been combined with systematically higher growth rates in developing relative to developed economies. As the authors remark, “there has been no decoupling in the cyclical component of developing country growth”, while “there has arguably been a decoupling in underlying trend rates of growth” (p.2). A similar pattern remains even if China and India are taken out of the picture.

              Source: PREM Note 141(p.3)