Policy Work

International Monetary Fund

Global Financial Stability Report, Chapter 2: Macrofinancial Stability Amid High Global Economic Uncertainty. October 2024 [IMF] [Blog] [Panel discussion]

With Rafael Barbosa, Yuhua Cai, Mario Catalán (co-lead), Andrea Deghi (co-lead), Li Lin, Tatsushi Okuda and Mustafa Yenice

Uncertainty regarding global economic outcomes and policies has been higher since the COVID-19 pandemic amid inflation shocks, rising geopolitical tensions, emerging technologies, and climate-related disasters. This chapter examines the implications of high macroeconomic uncertainty for macrofinancial stability by studying its association with downside tail risks to future output growth, asset prices, and bank lending growth. The findings show that high macroeconomic uncertainty can significantly raise downside risks for economic and financial stability, and the relationship may be stronger when macrofinancial vulnerabilities are elevated, or financial market volatility is low (during episodes of a macro-market disconnect). Moreover, macroeconomic uncertainty can trigger cross-border spillover effects through trade and financial linkages. More credible policy frameworks and building resilience through adequate macroprudential policies and reserve buffers, and by reducing fiscal vulnerabilities could help mitigate the adverse consequences of high macroeconomic uncertainty.