Exiting from crisis intervention policies

As the financial crisis winds down, policymakers need to formulate and begin to implement strategies for exiting from crisis related intervention policies. This paper identifies broad principles for exiting from  policies implemented by countries across the globe following the onset of the financial crisis in the summer of 2007.  It mostly focuses on medium and large advanced and emerging market economies, in which interventions have been more substantial:

The following principles are presented:

• the appropriate timing, pace, and mode of exiting from crisis-related policies depend on the state of the economy and the health of the financial system
• policymakers need to devise exit strategies that are coherent, credible, and clearly communicated
• fiscal adjustment strategies should include: (i) reducing government debt to prudent levels, which in some cases are below precrisis levels; (ii) strengthening fiscal institutions; (iii) reforming health and pension entitlements, containing the growth of other primary spending, and increasing revenues; (iv) enhancing asset and liability management; and (v) maintaining adequate social safety nets
• monetary policy: central banks have the tools to exit from unprecedented crisis-intervention measures, but methods will vary with individual country and market specific circumstances. Raising policy interest rates does not necessarily require the unwinding of unconventional policies. Some unconventional policies, including systemic liquidity easing measures, continue to unwind naturally with improvements in financial market conditions.  Maintaining central bank independence remains a key prerequisite for price stability in the long run
• financial policies: unwinding financial sector support measures should be gradual and will require flexibility. A new financial regulatory framework and more capital will be needed to
  reduce the risks ensuing from the unwinding of crisis-related financial policies