This edition of the World Economic Outlook explores the prospects for growth in the aftermath of the financial crisis. The fragile nature of the recovery will present many challenges. These include the need for continued strong monetary, fiscal, and financial policies, ongoing efforts to restore the financial sector to health, improvements in private demand, and preparation of exit strategies on the fiscal, monetary, and financial fronts. The first of two analytical chapters included in this edition, "Monetary Policy and Asset Prices: What Do We Learn from Booms and Busts?" explores whether there is a role for monetary policy in preventing asset price busts. The second, "Medium-Run Output Evolutions after Crises: A Historical Perspective," explores the effect of large economic shocks on output and its composition, including variations related to initial conditions, the type of shock, and economic policies.
The global economy seems to be on the verge of recovery. The advanced economies, hit particularly hard by financial crises and the collapse in world trade, are showing signs of stabilization, driven mainly by an unprecedented public policy response. The shape of the recoveries will vary, however, with economies that suffered financial crises likely to experience weaker recoveries than those that were affected mainly by the collapse in global demand. The rebound in emerging and other developing economies is being led by a resurgence in Asia, most notably in China and India, fuelled by policy stimulus and a turn in the global manufacturing cycle. Other emerging economies are benefiting from commodity priceincreases, as we11 as from policy frameworks that are stronger than during previous crises. However, recovery in the Commonwealth of Independent States (CIS) and emerging Europe is likely to be difficult, especially for economies most affected by sharply falling capital flows and domestic financial sector turmoil.
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