Although macro-economist Edin Mujagic generally agrees with the IMF and Global Economic Outlook estimates, he does warn against certain passages. ‘I really thought: what am I reading?’
Mujagic is concerned, among other things, about the future prospects outlined by the International Monetary Fund (IMF) once inflation is under control. “We have all come to the conclusion recently that we never want to go back to a period with 0 percent or negative interest rates,” he says. “But the IMF says that if inflation falls back to the much-wanted 2 percent, it should be expected that central banks around the world will return to where they started.”
He is referring to a return to 0 percent interest and the large-scale purchase of government bonds by central banks. That doesn’t make him happy at all. Precisely because, according to Mujagic, it has become clear in recent years that if such an economic policy is pursued for too long, it will lead to problems.
The reason why central banks revert to low interest rates when inflation is low, according to Mujagic, is that there is little room to stimulate the economy in other ways. ‘That would only be possible by introducing exceptional measures, such as that 0 percent interest.’
Policy coordination
The IMF also calls in the report that governments and central banks may need to coordinate their policies in the future. ‘And that makes the hairs of every economist stand on end’, says Mujagic. ‘Because we’ve had coordination between fiscal policy and monetary policy a few times in the past, and it basically means that the central bank has to listen to what the government wants. That almost always means higher inflation in the future and you should never want that.’
‘You should never want higher inflation in the future’
Furthermore, Mujagic notes that the IMF suggests that the 2 percent standard for inflation is also at risk of being challenged in the future. “The IMF thinks that standard may be too strict, and that the target should perhaps be 4 or 5 percent,” he concludes. ‘That’s terrifying. Especially if you combine it with that possible coordination. That is the last thing an economy needs, let alone a society.’
