Global Imbalances and Policy Spillovers: A New Approach at the International Monetary Fund

Sean Hagan, International Monetary Fund
Tamim Bayoumi, International Monetary Fund
Steven Phillips, International Monetary Fund
Joseph E. Gagnon, Peterson Institute
John Williamson, Peterson Institute

Peterson Institute for International Economics, Washington, DC

September 18, 2012

The Peterson Institute hosted an event on September 18, 2012, to discuss a major shift in the International Monetary Fund's (IMF) framework for identifying exchange rate and financial policies in member countries that may have harmful implications for global stability or adverse economic effects on other countries. The leaders of the IMF team for this revised strategy—Sean Hagan, Tamim Bayoumi and Steven Phillips—presented the key elements of their work, as published recently by the IMF, the Pilot External Sector Report and underlying External Balance Assessment methodology. PIIE Senior Fellows Joseph E. Gagnon and John Williamson led off with separate remarks on the IMF framework.

The IMF's new approach focuses on the interconnectedness of all major economies and the spillovers that policies in each economy have on other economies. One of the key elements of this new approach is the External Balance Assessment methodology, which analyzes the sources of and cures to global economic account imbalances and volatile capital flows. Since economic recoveries have been sluggish in the advanced economies and global current account balances remain large despite the stated commitment of the leaders of the G-20 nations to narrow them, this new framework aims to provide more effective policy guidance to achieve balanced and sustainable growth.

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