November 02, 2009
Abstract: From March to November 2009, global equity markets not only recovered, but shot up way past what is perhaps warranted by the real sector. This can be attributed partly to a revival of confidence in the global economy, and partly to huge increases in worldwide liquidity. This raises interesting questions for the future. Can markets be trusted to make fairly accurate assessments about macroeconomic prospects, particularly in the aftermath of a crisis? If not, can policy-makers claim to know better than the market? Do they know which decisions worked and which did not and whether any successful policy interventions have had any serious unintended consequences? The huge build-up in governments’ fiscal commitments over the past few months, for example, could very well trigger the next upheaval. Thus, the recent crisis may be over, but the lessons to deal with future crises are still being learnt.
Keywords: global equity markets; asset prices; macroeconomic prospects; government borrowing
