by Charles Freedmana, Michael Kumhofb, Douglas Laxtonb, and Dirk Muirb
This paper considers some of the main risks and opportunities currently facing the world economy. Against a baseline forecast of October 2009, it first discusses a number of policy mistakes or policy failures that could lead to even worse outcomes than currently envisaged. It then describes the policy choices that would help to support global demand on a more sustainable basis while rebalancing its regional elements and therefore current accounts. Using the United States as an example, the paper also provides estimates of the long-term damage from protracted excessive fiscal deficits, and of the benefits from significant fiscal consolidation.
JEL Codes: E62, F41, F42, H30, H63.
Full article (PDF, 38 pages 1024 kb)
Discussion by Raf Wouters
a Scholar in Residence, Economics Department, Carleton University
b Research Department, Modeling Division, International Monetary Fund