We need to work better together to understand more fully the impact of these unconventional monetary policies local and global and how that affects the path of exit. And, above all, we must use the time wisely and not waste the space provided by unconventional policies. Global policymakers—all policymakers, within countries and across countries have a responsibility to take the full range of actions needed to restore stability and growth, and to reduce imbalances.
Where do we stand with UMP today?
Where do we stand with UMP today?
Let me say it up front: I do not suggest a rush to exit. UMP is still needed in all places it is being used, albeit longer for some than for others. In Europe, for example, there is a good deal more mileage to be gained from UMP. In Japan too, exit is very likely some way off.
The day will come when this period of exceptionally loose monetary policy, both conventional and unconventional, must end,in line with economic recovery and its impact on inflation. We need to plan for that day, especially since we do not know exactly when it comes.
One thing we can say for certain: the path to exit will and should depend on the pace of recovery, the latter mitigating the potential downsides of the former.
Together, we need to keep an eye on both financial stability and growth, watch whether the benefits of UMP are subject to diminishing returns, and analyze whether the financial side-effects get worse over time.
Just as with entry, exit will take us into uncharted territory.
So, the Fund and policymakers need to start thinking about what exit will eventually look like. That includes the implications for global economic and financial stability: the whole system, not just one part of it. This is an issue that the Fund has been watching and will continue to watch closely. It is, after all, the IMF’s raison d'être.
