In her speech at the conference, she discussed the substantial ramifications of large geopolitical shocks on monetary policy, emphasizing the need for global economic systems to adapt to a more shock-prone environment. She highlighted how the ongoing geopolitical conflicts have accelerated the fragmentation of the global economy and increased defence spending, influencing national and economic security strategies across nations.
She argues that these changes, while necessary for current geopolitical realities, could lead to a global economy that is more susceptible to shocks, characterized by heightened inflationary pressures and constrained economic growth. The speech delves into the broader economic impacts, particularly the inflationary spikes driven by disruptions in energy and food supplies, and how these have reshaped economic growth, trade relationships, and public finances.
To address these challenges, she emphasizes several adjustments to monetary and fiscal policies to bolster economic resilience against large shocks. These include adopting more flexible monetary policy approaches, allowing central banks to respond dynamically to inflation and stabilize employment. She advocates for strategically using foreign exchange interventions to manage exchange rate volatility. She stresses the importance of aligning fiscal policies with monetary efforts to control demand pressures without inflating prices further. Enhancing financial regulations is crucial, as is implementing structural reforms to improve labour market flexibility and economic diversification. She calls for an integrated policy framework that combines monetary, fiscal, and structural strategies, ensuring a cohesive and robust response to financial shocks. Additionally, adopting a risk management approach in policy settings to prepare for potential worst-case scenarios is vital for maintaining economic stability.
Access the speech on the IMF’s website.