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Secular Stagnation: A Working Pair of Scissors Needs Two Blades

Otaviano Canuto's picture
The role of asset bubbles as an unsustainable pillar of pre-2007 world economic growth has been widely recognized. Simultaneously, analysts worry that a secular stagnation, though momentarily offset by asset bubbles, may have been already at play in major advanced economies, leading to the ongoing sluggish and feeble recovery.

Calibrating 2014

Otaviano Canuto's picture
The global economy looks poised to display better growth performance in 2014. Leading indicators are pointing upward – or at least to stability – in major growth poles. However, for this to translate into reality policymakers will need to be nimble enough to calibrate responses to idiosyncratic challenges.

More and Better Jobs: Are Fiscal Stimulus Packages Helping?

Raj Nallari's picture

 

Global GDP growth and as well as GDP growth in each of the regions were lower in 2009 compared to 2007. More specifically, specifically, negative growth rates were observed during 2009 in developed countries & European Union, Central and SE Europe & CIS countries and to a lesser extent in LAC, while the growth rates for East Asia, South Asia, Middle East, North Africa and Sub-Saharan Africa were positive in 2009 but lower than in 2007.

 

Reflecting this, all regions experienced higher unemployment rates, with the highest being in the developed economies & EU, Central and SE Europe & CIS and LAC economies, which again all had negative GDP growth rates in 2009. The ILO estimates that the global crisis has led to 34 million more unemployed and the World Bank estimates that about 60 million people may have been pushed into poverty.

From Bubble to Bubble: Government Policy Blunders

Raj Nallari's picture

Greedy speculators in housing and private bankers, financial innovation and failure of risk models, regulators and credit rating agencies were all deservedly blamed for the recent financial crisis. Behind this all is public policy that worsened the problems.

The Next Wave of This Crisis

Raj Nallari's picture

After all is said and done, this crisis had its genesis in US and European countries living beyond their means. This was reflected in large current account deficit which was financed by emerging economies of China, Russia, Brazil, Korea and others.

Re-visiting Exchange Rate Regimes

Raj Nallari's picture

The choice of exchange rate regimes by governments has evolved since the 1990s. In the early 1990s, as transition economies joined the world economy, they pegged to the Deutsche Mark, while the East Asian countries were pegged to the US dollar.

Transmission of Crisis from Home Mortgages to US Credit Freeze

Raj Nallari's picture

By early-2007, it became clear as housing prices began to decline, losses on sub-primate mortgages that originated in 2003-2006 were rising more rapidly than the assumptions used and risk-model predictions. The deterioration in borrowing quality and other shortcomings mentioned above gave little comfort to investors.

The 'Perfect Storm'

Raj Nallari's picture

The collapse of the dot.com bubble in early-2001 and the 9/11 attacks was followed by an easing of monetary policy in the US and Euro Area as a response to avert an economic slow-down. Around the same time, coming out of the Asian crisis, emerging BRICs and Gulf countries started building up huge foreign exchange reserves, primarily denominated in US dollars and safest financial securities, such as US Treasury bills.