adjustment process of the global economy (1)

8/12/2019 Adjustment Process of the Global Economy (1)

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ADJUSTMENT PROCESS OF THE

GLOBAL ECONOMY

PRESENTED BY:- GROUP 5

ARPIT MOHANTY - 13202009

JYOTSNA SINGH - 13202017

PARAG PARMAR - 13202027

PRAGYA PANDA - 13202030

SAIKAT KUMAR DAS 13202038

TRISHA SIKDER - 13202059


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FIRSTSTAGEOFTHEECONOMICADJUSTMENT

PROCESS: 200709

Focuses on the start of an apparent slowdown in the

U.S. economy from 2007 and on the immediate aftermath

of the global financial crisis up until 2009.

This is demonstrated by the high level of correlation

among countries, and between advanced and emerging

economies, in terms of real GDP growth rates (Chart 1).


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REASONSFORECONOMICCRISIS

The bursting of the U.S. (United States) housing bubble,

which peaked in 2006

The U.S. Senate's LevinCoburn reportconcluded that

the crisis was the result of "high risk, complex financial

products

Subprime lending

Growth of the housing bubble

Easy credit conditions

Weak and fraudulent underwriting practices

Predatory lending

Deregulation

Increased debt burden or over-leveraging
http://en.wikipedia.org/wiki/Housing_bubblehttp://en.wikipedia.org/wiki/Wall_Street_and_the_Financial_Crisis:_Anatomy_of_a_Financial_Collapsehttp://en.wikipedia.org/wiki/Wall_Street_and_the_Financial_Crisis:_Anatomy_of_a_Financial_Collapsehttp://en.wikipedia.org/wiki/Wall_Street_and_the_Financial_Crisis:_Anatomy_of_a_Financial_Collapsehttp://en.wikipedia.org/wiki/Wall_Street_and_the_Financial_Crisis:_Anatomy_of_a_Financial_Collapsehttp://en.wikipedia.org/wiki/Wall_Street_and_the_Financial_Crisis:_Anatomy_of_a_Financial_Collapsehttp://en.wikipedia.org/wiki/Wall_Street_and_the_Financial_Crisis:_Anatomy_of_a_Financial_Collapsehttp://en.wikipedia.org/wiki/Housing_bubble


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SECONDSTAGEOFTHEECONOMICADJUSTMENT

PROCESS2010-2012

There was a divergence emerged between the growth paths

of advanced economies and emerging economies.

Advanced economies remained relatively weak during this

recovery, and the peripheral economies in the euro area

began to face severe fiscal austerity and recession with the

occurrence of the debt crisis.


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FEATURESOFTHESECONDSTAGE(CONTD)

Advanced economies coped with large negative

output gaps through unprecedented aggressive

monetary easing, thereby preventing these

economies as a whole from falling into a double dip

recession.

In contrast, emerging economies posted relatively

high growth, and those in the Asian region in

particular gained growth momentum and becamethe main driving force for global economic growth.


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FEATURESOFTHESECONDSTAGE(CONTD)

Chinas strong growth large-scale fiscal

stimulus package & accommodative monetarypolicy

Supported other emerging economies through

greater intra-regional trade and production

linkages, as well as FDI activities in the Asian

region.


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THIRDSTAGEOFECONOMICADJUSTMENT

PROCESS(2013-PRESENT)

Emerging economies are losing momentum while

advance economy are improving


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Advance economy is not particularly robust, however,

since the output is going to remain negative over few

years.

Variance in pace of growth of advanced economies are

projected to become evident.

Moderation of fiscal and monetary stimulus measures

and surfacing of structural problems in some economies

such as detoriation of fiscal and current account deficit,

private sector , debt accumulation, real estate bubbles.

Over past decades Asian market have strengthened

financial linkages with global financial markets through

portfolio investment channels.


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COMMON FEATURES RELATED TO

MONETARY POLICY AND THE ROLE OF

CENTRAL BANK.

The adoption of 2% or close to 2 % as a price

stability target.

Anchoring medium to long term inflation

expectations at 2%

Large scale asset purchases as a non traditional

monetary policy tool .

Forward guidance as non traditional monetary

policy tool.

The strengthened role of central bank in light of

macro prudential policy .


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MAJORCHALLENGESFACEDBYCENTRAL

BANKSOFADVANCEDECONOMIES

Moderate or Sluggish credit growth.

Monetary accommodation and growing fiscal

linkages

Avoiding disinflation or deflation

Bank of Japans challenge to achieve 2% pricestability target


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MAJORCHALLENGESFACEDBYCENTRAL

BANKSOFEMERGINGECONOMIES

Three challenges related to capital inflows:

Follow-the-leader behavior in setting short term policy

interest rates

Growing importance of macroprudential policy to deal

with capital inflows Local currency-denominated bonds and enhanced

linkages with global bond markets

Diverging economic performance in Asian emergingeconomies.


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CONCLUSION

Central banks of large advanced economies stillcontinue accommodative policies even after 5 years.

Enhanced and increased linkages due to the extremelylow credit rates in circulation in advanced economies.

Bilateral liquidity swap agreements to stay for the sixeconomies, to be made into standing arrangements.

Chiang Mai Initiative Multilateralization (CMIM)established for monitoring capital flow movements,improving crisis prevention and management capacity.

Need for enhanced communication amongst CentralBanks globally.


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adjustment process of the global economy (1)

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