IMF Raises Fears over Spillover Effect of Major Economies
- By Abimbola Tooki
- Published September 5th, 2011
- News
- Unrated
A new report by the International Monetary Fund (IMF) underlines the importance of financial links in spreading risk and how policies in major economies impact financial markets. The report is part of the IMF’s effort to strengthen policy analysis, by enhancing its assessment of interconnections between the world’s economies, and how policies in the larger economies impact the rest of the world.
Since the 2008 global financial crisis, economists and policymakers have become more aware of the risks and potential destabilizing effects that policies and shocks in major economies can have on other countries and regions.
The new focus on “spillover effects”, and the impact of policies in one country on another is believed to be because of the large volume of trade and financial linkages in today’s economy.
According to Ranjit Teja, deputy director of the IMF’s Strategy, Policy and Review Department, spillover reports are “aimed at improving our understanding of the interconnected nature of the world economy in order to support better policy collaboration at the global level.”
The consolidated report was discussed by the IMF’s Executive Board and follows new detailed assessments of the impact of economic policies in the world’s five largest economies; China, Euro Area, Japan, United Kingdom and the United States on their partner economies. The consolidated report focuses on overarching messages relevant for the global policy debate.
Key among these messages, the report highlights that “short-term policy spillovers hinge on their effects on financial markets” (rather than traditional trade channels). Policies that alleviate financial stress have a powerful and positive effect on the others.
Since the 2008 global financial crisis, economists and policymakers have become more aware of the risks and potential destabilizing effects that policies and shocks in major economies can have on other countries and regions.
The new focus on “spillover effects”, and the impact of policies in one country on another is believed to be because of the large volume of trade and financial linkages in today’s economy.
According to Ranjit Teja, deputy director of the IMF’s Strategy, Policy and Review Department, spillover reports are “aimed at improving our understanding of the interconnected nature of the world economy in order to support better policy collaboration at the global level.”
The consolidated report was discussed by the IMF’s Executive Board and follows new detailed assessments of the impact of economic policies in the world’s five largest economies; China, Euro Area, Japan, United Kingdom and the United States on their partner economies. The consolidated report focuses on overarching messages relevant for the global policy debate.
Key among these messages, the report highlights that “short-term policy spillovers hinge on their effects on financial markets” (rather than traditional trade channels). Policies that alleviate financial stress have a powerful and positive effect on the others.
