Reconstructing the World Economy

New IMF book discusses future shape of economic and financial policy

Short-term challenges, long-term restructuring considered

Proposed solutions will be discussed at the G-20 Summit in November

A new IMF book, Reconstructing the World Economy, presents a number of proposals to improve the stability of the global economy in light of the recent crisis.

In addition to discussing the immediate policy challenges, such as when to exit from stimulus measures, the book considers issues of a longer-term nature, such as how to correct flaws in the prevailing macroeconomic policy framework, redesign financial regulation and supervision, and strengthen the international financial architecture.

Edited by IMF Chief Economist Olivier Blanchard and Il SaKong, Chairman of the Presidential Committee for the Group of Twenty (G-20) summit of industrial and emerging market countries, the book is based on five papers prepared by IMF economists for a workshop last February in Seoul, Korea. The workshop provided an initial forum for discussing these challenges, a topic that will be taken up again in November at the G-20 summit in Seoul.

The conference volume is being released as the IMF and the Korean government conclude a jointly organized high-level conference to examine Asia’s economic dynamism and evolving role in international policymaking.

Reconstructing the World Economy contains the Seoul conference papers on the five topics listed below, as well as comments by eminent policymakers and academics, including Charles Bean, deputy governor of the Bank of England; Justin Lin, chief economist of the World Bank; Philip Lowe, assistant governor of the Reserve Bank of Australia, and Yung Chul Park, professor of economics at Korea University, among others.

Exit strategies

Advanced economies face a daunting challenge to bring fiscal and monetary policy back to normalcy. “Assuming no further fiscal action, the general government gross debt-to-GDP ratio of advanced economies is projected to rise from 73 percent at end-2007 to 109 percent at end-2014,” the authors of the book’s first section say.

They propose five basic principles to guide an exit from macroeconomic stimulus: the need for consistency across policy instruments, flexibility, clear communication, ensuring strategies rely on market-based incentives, and the need for cross-country consultation and coordination.

Global imbalances

This section addresses future sources of growth and asks how the...