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Briefing

Global Monetary Policy Exit Strategy

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Critical Issues

Background:

A slew of signs that the world has passed the worst of its economic slowdown has stirred interest in when and how central banks will roll back monetary easing. Less negatively affected economies with higher inflation are likely to tighten first, as Israel demonstrated with a rate hike in August and Australia demonstrated in October 2009. Countries most severely hit by the financial crisis must be careful not to tighten prematurely, before unemployment stops rising, but must also manage inflation expectations from driving up interest rates. They may consider alternative monetary policy regimes that would prevent financial crises. Central banks must coordinate their tightening strategies as timing is of utmost importance to prevent a disorderly exit from loose monetary policy.

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Associated Readings

Analysis IMF Nov 08, 2009 IMF Note on Global Economic Prospects and Principles for Policy Exit Analysis Economist Intelligence Unit Nov 06, 2009 World economy: Disorderly exit Analysis IMF Vladimir Klyuev, Krishna Srinivasan and Phil de Imus Nov 08, 2009 Unconventional Choices for Unconventional Times: Credit and Quantitative Easing in Advanced Economies Analysis Credit Agricole Sep 15, 2009 Exit strategies: a practical guide Analysis Natixis Patrick Artus Aug 21, 2009 Exit strategies for central banks: A problem of economic policy, not a technical problem Analysis TD Waterhouse Don Drummond, Beata Caranci, Richard Kelly and James Marple Aug 28, 2009 The Great Recession: Lessons and Opportunities Analysis BBVA Jose Luis Escrivá Jul 03, 2009 Zero interest, quantitative easing: Appropriate for now, but where is the exit?