Speech

Introductory Remarks by the First Deputy Managing Director at 23rd Jacques Polak Annual Research Conference

November 10, 2022

Good morning and welcome to the 23rd Jacques Polak Annual Research Conference. It is my great pleasure to welcome you here in person after 3 years. This year’s conference is a special one as we are celebrating Maury’s contribution to the field of economics in honor of his 70^th birthday.

As you all know, Maury is known around the globe for his work on international economics and is considered as one of our profession’s most influential macroeconomists. He is special to us at the Fund because of his leadership of the Research Department including his mentorship of many of the economists there.

Maury has had a tremendous influence on my personal journey as an economist. Back in the summer of 1997, when I was a graduate student in Princeton, I got to work on the solution manual for Ken and Maury’s graduate textbook. I am thankful to Maury’s scholarship, his patience, his kindness. I particularly appreciated his invaluable guidance on the role of chief economist when I joined in 2019.

Maury has been a prolific researcher. Let me highlight a few of his most influential works.

First, Maury’s work on self-fulfilling currency crises was at the core of the second generation currency crises models. He argued that a currency crisis can materialize not only due to inconsistent domestic policies, as the first generation models posited, but also because of self-confirming pessimism.

In addition, his work with Ken Rogoff provided a new open economy Keynesian framework: relative to Mundell Fleming dynamics, intertemporal optimization by households, firms, welfare analysis.  This inspired a wave of research studying the effects of monetary and fiscal policy within an open economy setup.

Last but not least, Maury was among the first to stress the risks of global imbalances, particularly in light of the growing complexity of financial markets. Importantly for the Fund, Maury’s research repeatedly made the case for flexible exchange rates.

His work remains as relevant today as when it was originally written, and his curiosity, encyclopedic erudition, and dedication to challenging our understanding of economic phenomena continue to inspire us to broaden our perspectives on issues critical to macroeconomics.

Let me now say a few words on the theme of this year’s conference. As the Managing Director highlighted during her remarks, the global economy continues to face steep challenges and policymakers have an incredibly narrow path to walk, leaving no room for missteps.

To add a few more to the list:

One is the strengthening of the dollar, which is at its highest level in over 20 years. Given the dominance of the dollar in international trade and finance, such a sharp strengthening of the dollar in a matter of months has sizable macroeconomic implications for almost all countries. Moreover, for many countries, the weakening of their currency compared to the US dollar has made the inflation fight harder.

Second, there are concerns with financial fragility from what could be lying in some corners of the broader financial system, including ‘hidden leverage’ in non-bank financial institutions that are outside of the regulatory perimeter and where data is critically lacking. Therefore, policymakers must keep a watchful eye on potential vulnerabilities and ensure that the ‘plumbing’ of the financial system is up to task when stress arises, and if liquidity provision is needed.

Another challenge is the risk of geo-economic fragmentation. Tensions over trade, investment, technology transfer, and national security have been growing for many years, undermining growth, and trust in the current global economic system. Since the war in Ukraine started, our monitoring indicates that around 30 countries have restricted trade in food, energy, and other key commodities. Improving cooperation and the constructive resolution of disputes is a key challenge and priority ahead of us.

The sessions in the conference will shed light on many of these important challenges that policymakers face today. We have ahead of us a very exciting lineup of presentations of novel research and we are very eager to learn from your work and discussions.

Here, at the Fund, we cherish research and new ideas and how they can be applied to improve global prosperity. The conference we have assembled features a fantastic set of panelists, presenters, and discussants, whose insightful presentations will generate much interest and discussion.

Let’s now, without further ado, start the first session on currency areas and the dominance of the US dollar. Let me give the floor to the chair, Ceyla Pazarbasioglu, Director of the Strategy Policy and Review Department, and wish you all an insightful and rewarding conference!