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The IMF’s assessment is that the impact of unconventional monetary policies (UMP) so far has been positive, Lagarde said. On balance, all countries benefited, first from lessened risks of financial turmoil, then from increased growth. Estimates suggest that quantitative easing, the purchase of assets by the US Federal Reserve, boosted world output by more than 1 per cent. Although the major gains were in the early phases, unconventional monetary policy has been a success, she said. While emphasising that there should be “no rush to exit”, Lagarde said that the period of exceptionally loose monetary policy must eventually end. But when exactly this happens will depend on country circumstances. “In Europe, for example, there is a good deal more mileage to be gained from UMP. In Japan, too, exit is very likely some way off”, she said. “One thing we can say for certain: The path to exit will and should depend on the pace of recovery”, Lagarde added.
A better mix of policies
While monetary policy has been part of the solution to the ongoing crisis, “it cannot provide all the answers”, Lagarde said. Unconventional policies need to be complemented by a broader spectrum of policies needed for durable, balanced growth. She also warned that the hard work of central banks could be wasted if not enough is done on other fronts.
In the advanced economies pursuing unconventional monetary policies, this means making progress on medium-term fiscal, financial and structural reforms. In the other countries, deeper reforms are also needed for durable medium-term growth, a reality highlighted by recent concerns about the slowing growth potential of emerging markets.
Coordination can improve outcomes
“Policies and policy coordination are not yet where they need to be”, Lagarde observed. “Failing to act at the global level, with each country playing its part, could put the global recovery at risk. With action, however, we can place the world economy on a path of strong, sustainable, and balanced growth.”
“We all need to work better together”, Lagarde said. “In today’s interconnected world, the spillovers from domestic policies—unconventional monetary policy included—may well feed back to where they began”, she added, noting that looking at the wider interest is thus in everyone’s interest.