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Outlook on the World Economy in the Post-Crisis Era
2009-11-04JANG, Bo-Hyung
목차
요약
After the Global Financial Panic Subsides
The financial panic that followed the collapse of Lehman Brothers is gradually subsiding, but conditions have not returned to normal, and the sustainability of recovery of the global economy is uncertain since it is being driven by a technical rebound and stimulus measures.
Contraction and Rebalancing of the Global Economy
The global financial crisis and macroeconomic imbalances are two sides of the same coin. Microeconomic failures in the subprime market and macroeconomic imbalances combined to inflate the largest credit bubble in history, which in turn resulted in the current massive crisis.
Economic imbalances and financial innovation led to a global liquidity boom and a 'Goldilocks economy.' However, as a result of the crisis, the positive feedback loop for liquidity has turned into a vicious cycle, which is driving the global economy to a new, lower equilibrium.
The financial crisis is having a negative impact on the real economy through the wealth effect, financial accelerators, and the bank capital channel. In particular, the effects on GDP will be more far-reaching than a simple cyclical downturn and long-run growth potential may be structurally lowered.
Return of Macroeconomic Volatility
Underlying the liquidity boom was the 'Great Moderation,' which was a period of low volatility in macroeconomic indicators such as GDP and inflation. The 'Great Moderation' was a structural shift resulting from the disinflation that followed the 'Great Inflation' of the 1970s.
However, the flip side of the 'Great Moderation' was the intensification of boom-bust cycles in financial markets and the exacerbation of global imbalances. The subprime crisis served to release these tensions that were the inherent side effects of macroeconomic stability.
Various anchors that buttressed global economic stability, such as globalization, financial innovation, and confidence in monetary policy, have been called into question, and macroeconomic volatility on a global scale, including large swings in GDP and price instability, is likely to return.
The Age of Uncertainty
In spite of the loss of confidence in the U.S., there is currently no credible alternative to the dollar, and as a result, a run on the dollar is unlikely for the time being. However, the global system of dollar recycling is unsustainable, and global imbalances must be quickly alleviated.
This crisis has cast doubt on modern economic paradigms, and has highlighted the problems in 'neo-liberalism' in particular. As a result, various other economic models, such as the Beijing Consensus, the Eco-centric Model, and Nordic Model, are now gaining favor.
The interplay of various external forces and uncertainties will determine the future of the global economic system, and four scenarios are possible : ① rebalanced multilateralism; ② re-engineered Western-centrism; ③ financial regionalism and ④ fragmented protectionism.
Conclusion and Implications
Uncertainty in the global economy will be high for the time being and economic stability will continue to be under pressure. This environment will create the risk of overshooting in government policies and will also provide new opportunities stemming from the divergence both between developed and emerging markets and among emerging markets.
The financial panic that followed the collapse of Lehman Brothers is gradually subsiding, but conditions have not returned to normal, and the sustainability of recovery of the global economy is uncertain since it is being driven by a technical rebound and stimulus measures.
Contraction and Rebalancing of the Global Economy
The global financial crisis and macroeconomic imbalances are two sides of the same coin. Microeconomic failures in the subprime market and macroeconomic imbalances combined to inflate the largest credit bubble in history, which in turn resulted in the current massive crisis.
Economic imbalances and financial innovation led to a global liquidity boom and a 'Goldilocks economy.' However, as a result of the crisis, the positive feedback loop for liquidity has turned into a vicious cycle, which is driving the global economy to a new, lower equilibrium.
The financial crisis is having a negative impact on the real economy through the wealth effect, financial accelerators, and the bank capital channel. In particular, the effects on GDP will be more far-reaching than a simple cyclical downturn and long-run growth potential may be structurally lowered.
Return of Macroeconomic Volatility
Underlying the liquidity boom was the 'Great Moderation,' which was a period of low volatility in macroeconomic indicators such as GDP and inflation. The 'Great Moderation' was a structural shift resulting from the disinflation that followed the 'Great Inflation' of the 1970s.
However, the flip side of the 'Great Moderation' was the intensification of boom-bust cycles in financial markets and the exacerbation of global imbalances. The subprime crisis served to release these tensions that were the inherent side effects of macroeconomic stability.
Various anchors that buttressed global economic stability, such as globalization, financial innovation, and confidence in monetary policy, have been called into question, and macroeconomic volatility on a global scale, including large swings in GDP and price instability, is likely to return.
The Age of Uncertainty
In spite of the loss of confidence in the U.S., there is currently no credible alternative to the dollar, and as a result, a run on the dollar is unlikely for the time being. However, the global system of dollar recycling is unsustainable, and global imbalances must be quickly alleviated.
This crisis has cast doubt on modern economic paradigms, and has highlighted the problems in 'neo-liberalism' in particular. As a result, various other economic models, such as the Beijing Consensus, the Eco-centric Model, and Nordic Model, are now gaining favor.
The interplay of various external forces and uncertainties will determine the future of the global economic system, and four scenarios are possible : ① rebalanced multilateralism; ② re-engineered Western-centrism; ③ financial regionalism and ④ fragmented protectionism.
Conclusion and Implications
Uncertainty in the global economy will be high for the time being and economic stability will continue to be under pressure. This environment will create the risk of overshooting in government policies and will also provide new opportunities stemming from the divergence both between developed and emerging markets and among emerging markets.