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


INTRODUCTION

The challenges faced by the Global economy is mainly
the adjustment process , focuses on the monetary policy
framework of advanced economy such as The United
States, Euro zone , Japan and The United Kingdom.

Concentrates on the emerging and developing
economies especially in the Asian region including India ,
Indonesia , Thailand , South Korea and China

Introduction to challenges faced by the central bank of
these economies in context with greater linkages with
global financial markets.
FIRST STAGE OF THE ECONOMIC ADJ USTMENT
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).

REASONS FOR ECONOMIC CRISIS
The bursting of the U.S. (United States) housing bubble,
which peaked in 2006
The U.S. Senate's LevinCoburn report concluded 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

SECOND STAGE OF THE ECONOMIC ADJUSTMENT
PROCESS 2010-2012


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.



FEATURES OF THE SECOND STAGE (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 became
the main driving force for global economic growth.
FEATURES OF THE SECOND STAGE (CONTD)
Chinas strong growth large-scale fiscal
stimulus package & accommodative monetary
policy

Supported other emerging economies through
greater intra-regional trade and production
linkages, as well as FDI activities in the Asian
region.


THIRD STAGE OF ECONOMIC ADJUSTMENT
PROCESS (2013-PRESENT)


Emerging economies are losing momentum while
advance economy are improving
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.
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 .

MAJOR CHALLENGES FACED BY CENTRAL
BANKS OF ADVANCED ECONOMIES
Moderate or Sluggish credit growth.

Monetary accommodation and growing fiscal
linkages

Avoiding disinflation or deflation

Bank of Japans challenge to achieve 2% price
stability target
MAJOR CHALLENGES FACED BY CENTRAL
BANKS OF EMERGING ECONOMIES
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 emerging
economies.

CONCLUSION
Central banks of large advanced economies still
continue accommodative policies even after 5 years.
Enhanced and increased linkages due to the extremely
low credit rates in circulation in advanced economies.
Bilateral liquidity swap agreements to stay for the six
economies, 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 Central
Banks globally.