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Iceland’s main banks, which had pursued risky expansion strategies, failed in the wake of the global financial crisis, plunging the economy into a deep recession. Prudential supervision needs to be improved.
Inflation performance has been unsatisfactory. By joining the euro area, Iceland would share the benefits of the ECB’s credibility. Substantial fiscal consolidation is required following the financial crisis.
There is a case, but there are also counter-arguments. With sufficient forward-looking behaviour among firms and households, price-level targeting can act as a powerful built-in stabiliser through automatic shifts in inflation expectations.
High public debt leaves virtually no room for fiscal manoeuvre to limit the impact of the crisis in Greece. The close trade and banking links established with the Balkan countries might be a risk in the near future.
Despite improved fundamentals, Mexico is hit hard by the financial crisis, being exposed to several simultaneous external shocks. A welcome, but weak, stimulus was passed for 2009, and policy will likely need to be supportive also in 2010.
This paper reviews the supervisory and regulatory framework and the many reforms that have already been adopted to remedy these weaknesses. It also provides recommendations for further reforms.
After a decade of rapid growth, Russia has fallen into recession. The near term challenge is to limit the extent of the downturn, while beyond the crisis, a sounder growth model should be put in place.
Despite improvements, the banking system remains underdeveloped and crisis-prone. The current crisis, albeit painful, may yield restructuring and new regulatory approaches that will be positive in the long run.
Russia should aim for a gradual switch from a quasi-fixed exchange rate policy to inflation targeting. Not all conditions for adopting inflation targeting are yet in place, but preparations should be accelerated.
This paper tests for the existence of a bank lending channel in the transmission of monetary policy in Brazil using monthly aggregate data for the period 1995:12 through 2008:6.