Understanding Global Recessions and Recoveries

The world is still recovering from the most recent global recession—dubbed the Great Recession because of its scale and global reach— and the likelihood of another downturn has never left the news as the world economy remains under the long shadow of a persistently weak recovery. The bankruptcy of Lehman Brothers, one of the largest U.S. investment banks, in 2008, pushed the world economy and financial system to the brink of collapse and the resulting recession had dire and extreme consequences.

 What began in the subprime mortgage market in the United States spiraled into a series of interlinked global events that scythed through the international financial and corporate sectors, slashed stock values and household wealth, made millions unemployed and triggered a huge rise in the debt of nations. Growing financial worries triggered a well-documented decline in the birth rate during and immediately after the 2008-9 recession in the United States, where vasectomy and suicide rates rose.

The 2009 recession ricocheted through Europe, left continued scars on the Japanese economy, and has also caused subsequent downturns in emerging market economies. The developing world has paid too with the subsequent sharp decline in commodity prices. A significant side effect has been the continued increase in inequality, particularly in advanced economies, where the wealthiest have advanced and middle classes stagnated.

But, despite the huge scale of the crisis, what’s clear is that we don’t really fully understand what triggers a global recession and how we can successfully stimulate a lasting recovery.

This book tracks the global business cycle through the destruction of a global recession to the uptick of recovery, drawing on four major episodes in the past half century, in 1975, 1982, 1991, and 2009. It defines key terms, document the main features of a recession and recovery, and describe the events that take place around these episodes.

Authors Ayhan Kose, now a leading economist at the World Bank, and Marco Terrones, a prominent researcher at the IMF, put the latest global recession and ongoing recovery in perspective and make a valuable contribution to the expanding literature on business cycles.

A companion website and DVD provide several unique tools to help readers understand the basics: interactive timelines of the four episodes, videos of author interviews explaining the context, several reports looking at the regional impact of the collapse, as well as coverage of the Lehman Brothers bankruptcy, and a commentary by Larry Summers.

As Nicholas Bloom, Professor of Economics at Stanford University, remarks: “Finally, a clear and insightful guide to global recessions and recoveries. And just in time, with the world trying to recover from its worst economic beating since the Great Depression. This book, written by two leading economists operating in the heart of Washington, will become the bible on global growth and collapse.”

See Trailer: http://www.imf.org/external/mmedia/view.aspx?vid=4138312282001

Event at Brookings             Article on Bloomberg          Preview on Atavist (video content)

Buy on   IMF Bookstore            Amazon

"This is a landmark book that will have a profound influence on how scholars and policy economists think about booms and busts for many years to come. Pioneers in the field of analyzing and defining global recessions, Kose and Terrones argue that it no longer makes any sense to analyze national downturns as if they always occur in isolation. Particularly interesting and original is their emphasis on the asynchronous nature of recoveries. After 2009, for example, advanced economies experienced their slowest post-war recovery, yet for several years emerging markets experienced their fastest. Kose and Terrones analysis underscores why one needs to think differently about recessions and recoveries in today s globalized world" - Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Professor of Economics, Harvard University.

"This is super cool stuff!”   Ugo Panizza, Pictet Chair in Finance and Development, The Graduate Institute, Geneva

          iBooks

Tracking a Budgetary Revolution

Public financial management (PFM)—the fine art of budgeting, spending, and managing public monies—has undergone a “revolution” since the late 1980s. This uniquely interdisciplinary combination of economics, political science, public administration, and accounting has seen an influx of innovative ideas and reforms that have sought to address some of the perennial challenges of managing public finances.

To constrain the likely temptation to increase expenditure and spend, rather than save, in times of plenty, countries have introduced fiscal rules and fiscal responsibility laws. To understand and plan for the impact of today’s policy choices on finances in the years ahead, governments have adopted medium-term budget frameworks. To help guard against over-optimistic economic and budgetary estimates, some countries have established independent fiscal councils. To shift the focus of decision making from how much money programs receive to the results they can achieve, many governments have introduced performance budgeting and management initiatives. To better understand the true state of public finances and underlying risks, some governments have sought to increase the comprehensiveness and coverage of fiscal reporting and accounting and have introduced risk management techniques.

This profound wave of change in the ways public spending is managed largely started in Australia, New Zealand, and the United Kingdom and has since then passed through virtually all advanced economies, and to some extent, has also reached emerging market economies and low-income countries.

Dramatic change

While the field of PFM has changed dramatically over the last two decades, very little has been written about this revolution, with the exception of a few specialized articles. In filling this gap in the literature, this book takes advantage of the unique perspectives provided by IMF public financial management experts, who, over the last two decades, have gained practical experience with many if not all of these reforms and are well placed to draw lessons, make sense of the PFM revolution, and share their cross-country experiences of what has worked in practice and what has not.

The book poses critical questions about these reforms and evaluates what they have accomplished and the issues and challenges they have encountered, including with the global financial and economic crisis.

Critical importance

The 2008-09 crisis highlighted the critical importance of a sound public financial management framework in ensuring that well-designed fiscal policies are effectively implemented. But it also demonstrated the underlying limitations of some countries’ PFM frameworks and the flawed design and weak implementation of some PFM innovations, as well as their failure to entrench themselves. Based on these experiences, this book draws general lessons to help guide reformers in their pursuit of the next generation of PFM reforms.

This publication can help countries, policymakers, and those interested in public finances meet the challenges of managing public finances in an increasingly complex and uncertain global environment.

Find on IMF Bookstore   On Amazon

Piketty Becomes Superstar Economics Author

Capital in the Twenty-First Century, already a best seller, is an invaluable contribution to how we understand inequality and its possible consequences.

Thomas Piketty—economist from the Paris School of Economics and ground-breaking researcher on income inequality--examines data from more than twenty countries spanning in some cases as far back as the 18th century to assess the dynamics of income and wealth distribution, with a particular focus on the role of capital ownership as a driver of long-run trends in income inequality. He argues that when the rate of return on capital exceeds the rate of economic growth, as it has for most of history, then rising income inequality becomes inevitable. He says that if this rising inequality is allowed to continue unchecked, the results could be deep political and social disruption.

While Piketty notes that inequality has different dimensions across countries, he concludes with a recommendation: significantly increase the progressivity of both income and wealth taxation. Given the extraordinarily globalized market for capital, he further argues that the reach of such taxes must be global as well.

Here"s a quick guide to the book from The Economist: Thomas Piketty’s “Capital”, summarised in four paragraphs

PBS Economics correspondent Paul Solman interviews Piketty for his take on why inequality of wealth has reverted to a lofty level last seen in 19th century Europe.




The Economic Policy Institute and the Washington Center for Equitable Growth host a presentation by Thomas Piketty:




The Guardian on What You Need to Know

CEPR and the Bank of England joint workshop (includes videos)

Reviews:

Paul Krugman, in the New York Review of Books

Larry Summers      Robert Solow        Brad DeLong    Jeffrey Frankel

Mervyn King, former Governor of the Bank of England

Why is it a bestseller?

Brad DeLong (again)    A critique from Daron Acemoglu and James Robinson

Dani Rodrik  "Piketty and the Zeitgeist"                    The Spectator magazine

Financial Times:Piketty’s Data Is Full of Errors     Piketty's Response

and Piketty's longer (10 page) response

NYT: Did Thomas Piketty Get His Math Wrong?

The Economist on Piketty's calculations

The view from France

Little Book of Economics

Harvard professor Greg Mankiw gives a thumbs up to Greg Ip, the U.S. Economics Editor of The Economist, based in Washington, D.C.:

"A terrific, very quick, and nontechnical introduction in economics (more macro than micro) is Greg Ip's Little Book of Economics. In case you don't know him, Greg writes for The Economist magazine and was previously at the Wall Street Journal. He now has a new edition of his book, together with an online guide to suggested readings."

See his website

Reexamining Economics

The global economic crisis and the subsequent weak recovery has shaken up macroeconomics.

A conference on the theme “Macro and Growth Policies in the Wake of the Crisis” took place at the IMF’s Headquarters in Washington, DC on March 7-8, 2011. The conference was hosted by four of the world’s most noted economists, including two Nobel laureates: Michael Spence (Stanford University), Joseph Stiglitz (Columbia University), Olivier Blanchard (Economic Counselor and Director of Research at the IMF), and David Romer (University of California, Berkeley). The event brought together leading policymakers and academics from both advanced and emerging countries, as well as representatives from civil society, the private sector, and the media.

The aim of the conference was to distill the policy lessons of the global financial crisis. Participants focused on six key areas: monetary policy, fiscal policy, financial intermediation and regulation, capital account management, growth strategies, and the international monetary system. They also sought to make concrete policy recommendations for how to revive sustainable growth while safeguarding macroeconomic and financial stability.

Review in F&D magazine
LSE review

Conference website In the Wake of the Crisis: Leading Economists Reassess Economic Policy by Michael Spence
My rating: 5 of 5 stars

The global economic crisis has challenged Economics to the core. This is the first pass at reexamining Economics in the light of lessons learned and still being learnt.

The IMF held a conference of leading economists in 2011. Conference co-host and Nobel Prize winner Joseph Stiglitz noted that “the models that were used before the crisis neither predicted the crisis nor gave us a framework for responding to the crisis when it happened.”

IMF Chief Economist Olivier Blanchard said: "The global economic crisis taught us to question our most cherished beliefs about the way we conduct macroeconomic policy." http://blog-imfdirect.imf.org/2011/03...

This book is a collection of thoughts following the crisis and an examination of the future direction of the international monetary system.

View all my reviews

Krugman on Keynes' General Theory -- "probably the most important book in Economics."

Nobel Prize winning economist Paul Krugman provides a new introduction to The General Theory of Employment, Interest and Money by English economist John Maynard Keynes. Krugman says it is probably the most important book in Economics.

Banking on Europe

The IMF has published a new policy paper on banking supervision in Europe as part of its Staff Discussion Note series. The paper, titled "A Banking Union for the Euro Area," argues that a union is the logical conclusion of the idea that integrated banking systems require integrated prudential oversight.

The case for a banking union for the euro area is both immediate and longer term. 

Moving responsibility for potential financial support and bank supervision to a shared level can reduce fragmentation of financial markets, stem deposit flight, and weaken the vicious loop of rising sovereign and bank borrowing costs. In steady state, a single framework should bring a uniformly high standard of confidence and oversight, reduce national distortions, and mitigate the buildup of concentrated risk that compromises systemic stability. "Time is of the essence," the paper argues.

Read an article in IMF Survey magazine