Record ID

137     [ Page 19 of 23, No. 1 ]

Date

2011-04

Author

Acosta Ormaechea, Santiago ; Coble Fernandez, David O

Affiliation

WHD, IMF

Title

Monetary Transmission in Dollarized and Non-Dollarized Economies: The Cases of Chile, New Zealand, Peru and Uruguay

Summary /
Abstract

The paper conducts a comparative study of the monetary policy transmission in two economies that run a well-established IT regime, Chile and New Zealand, vis-à-vis two economies operating under relatively newer IT regimes, and which are exposed to a significant degree of dollarization, Peru and Uruguay. It is shown that the traditional interest rate channel is effective in Chile and New Zealand. For Peru and Uruguay, the exchange rate channel is instead more relevant in the transmission of monetary policy. This latter result follows from the limited impact of the policy rate in curbing inflationary pressures in these two countries, in combination with the fact that they have a relatively large and persistent exchange rate pass through. Finally, it is shown that the on-going de-dollarization process of Peru and Uruguay has somewhat strengthened their monetary transmission through the interest rate channel.

Keywords

Monetary Policy Transmission; IT Regimes; Dollarization

URL

http://www.imf.org/external/pubs/ft/wp/2011/wp1187.pdf

Record ID

136     [ Page 19 of 23, No. 2 ]

Date

2006-03

Author

Andrew Berg, Philippe Karam, and Douglas Laxton

Affiliation

IMF

Title

Practical Model-Based Monetary Policy Analysis—A How-To Guide

Summary /
Abstract

This paper provides a how-to guide to model-based forecasting and monetary policy analysis. It describes a simple structural model, along the lines of those in use in a number of central banks. This workhorse model consists of an aggregate demand (or IS) curve, a price-setting (or Phillips) curve, a version of the uncovered interest parity condition, and a monetary policy reaction function. The paper discusses how to parameterize the model and use it for forecasting and policy analysis, illustrating with an application to Canada. It also introduces a set of useful software tools for conducting a model-consistent forecast.

Keywords

Monetary Policy, Forecasting and Simulation, Model construction and estimation, computational techniques

URL

http://www.imf.org/external/pubs/ft/wp/2006/wp0681.pdf

Record ID

135     [ Page 19 of 23, No. 3 ]

Date

2011-04

Author

Anand, Rahul ; Ding, Ding ; Peiris, Shanaka J.

Affiliation

APD, IMF

Title

Toward Inflation Targeting in Sri Lanka

Summary /
Abstract

This paper develops a practical model-based forecasting and policy analysis system (FPAS) to support a transition to an inflation forecast targeting regime in Sri Lanka. The FPAS model provides a relatively good forecast for inflation and a framework to evaluate policy trade-offs. The model simulations suggest that an open-economy inflation targeting rule can reduce macroeconomic volatility and anchor inflationary expectations given the size and type of shocks faced by the economy. Sri Lanka could aim to target a broad inflation range initially due to its susceptibility supply-side shocks while enhancing exchange rate flexibility and strengthening the effectiveness of monetary policy in the transition to an inflation forecast targeting regime.

Keywords

Inflation Targeting, Monetary Policy, Bayesian Estimation

URL

http://www.imf.org/external/pubs/ft/wp/2011/wp1181.pdf

Record ID

134     [ Page 19 of 23, No. 4 ]

Date

2011-04

Author

Nina Skrove Falch and Ragnar Nymoen

Affiliation

University of Oslo

Title

The Accuracy of a Forecast Targeting Central Bank

Summary /
Abstract

This paper evaluates inflation forecasts made by Norges Bank which is recognized as a successful forecast targeting central bank. It is reasonable to expect that Norges Bank produces inflation forecasts that are on average better than other forecasts, both ‘naïve’ forecasts, and forecasts from econometric models outside the central bank. The authors find that the superiority of the Bank’s forecast cannot be asserted, when compared with genuine ex-ante real time forecasts from an independent econometric model. The 1-step Monetary Policy Report forecasts are preferable to the 1-step forecasts from the outside model, but for the policy relevant horizons (4 to 9 quarters ahead), the forecasts from the outsider model are preferred with a wider margin. An explanation in terms of too high speed of adjustment to the inflation target is supported by the evidence. Norges Bank’s forecasts are convincingly better than ‘naïve’ forecasts over the second half of our sample, but not over the whole sample, which includes a change in the mean of inflation.

Keywords

Inflation forecasts; monetary policy; forecast comparison; forecast targeting central bank; econometric models

URL

http://folk.uio.no/rnymoen/failjun10.pdf

Record ID

133     [ Page 19 of 23, No. 5 ]

Date

2011-03

Author

William Poole Robert H. Rasche and David C. Wheelock

Affiliation

NBER

Title

The Great Inflation: Did the Shadow Know Better?

Summary /
Abstract

The Shadow Open Market Committee was formed in 1973 in response to rising inflation and the apparent unwillingness of U.S. policymakers to implement policies necessary to maintain price stability. This paper describes how the Committee’s policy views differed from those of most Federal Reserve officials and many academic economists at the time. The Shadow argued that price stability should be the primary goal of monetary policy and favored gradual adjustment of monetary growth to a rate consistent with price stability. This paper evaluates the Shadow’s policy rule in the context of the New Keynesian macroeconomic model of Clarida, Gali, and Gertler (1999). Simulations of the model suggest that the gradual stabilization of monetary growth favored by the Shadow would have lowered inflation with less impact on output growth and less variability in inflation or output than a one-time reduction in monetary growth. We conclude that the Shadow articulated a policy that would have outperformed the policies actually implemented by the Federal Reserve during the Great Inflation era.

URL

http://www.nber.org/papers/w16910.pdf

Record ID

132     [ Page 19 of 23, No. 6 ]

Date

2011-03

Author

Money and Capital Markets Department (MCM)

Affiliation

IMF

Title

Macroprudential Policy - An Organizing Framework - Background Paper

Summary /
Abstract

MCM conducted a survey in December 2010 to take stock of international experiences with financial stability and the evolving macroprudential policy framework. The survey was designed to seek information in three broad areas: the institutional setup for macroprudential policy, the analytical approach to systemic risk monitoring, and the macroprudential policy toolkit. The survey was sent to 63 countries and the European Central Bank (ECB), including all countries in the G-20 and those subject to mandatory Financial Sector Assessment Programs (FSAPs). The target list is designed to cover a broad range of jurisdictions in all regions, but more weight is given to economies that are systemically important (see Annex for details). The response rate is 80 percent. This note provides a summary of the survey’s main findings.

Keywords

Macroprudential policy, financial stability, systemic risk

URL

http://www.imf.org/external/np/pp/eng/2011/031411a.pdf

Record ID

131     [ Page 19 of 23, No. 7 ]

Date

2011-02

Author

Monetary and Capital Markets, Research, and Strategy, Policy, and Review Departments

Affiliation

IMF

Title

Assessing Reserve Adequacy - Supplementary Information

Summary /
Abstract

The dramatic increase in reserves holdings over the past decade has resumed since the global financial crisis, even at an accelerated pace. While the crisis has heightened perceptions of the importance of holding adequate reserves, there is little consensus on what constitutes an adequate level from a precautionary perspective: traditional metrics are narrowly-based and often provide conflicting signals; while newer approaches tend to be hostage to stylized modeling assumptions and calibrations. As a result, assessments tend to rely on comparisons with peers, probably amplifying the upward trend as perceived needs rise in line with actual holdings.

The metric proposed in the main paper is based on outflows—principally in relation the relevant stock of underlying foreign liabilities or domestic assets—during periods of exchange market pressure (EMP). Especially as it remains the primary reason countries accumulate reserves for insurance purposes, the metric is based on balance of payments drains experienced during EMP episodes—i.e., a measure of sufficient reserves periods of pressure and ahead of a full-blown crisis.

URL

http://www.imf.org/external/np/pp/eng/2011/021411c.pdf

Record ID

130     [ Page 19 of 23, No. 8 ]

Date

2011-03

Author

Marco Lo Duca and Tuomas A. Peltonen

Affiliation

European Central Bank

Title

Macro-financial vulnerabilities and future financial stress: assessing systemic risks and predicting systemic events

Summary /
Abstract

This paper develops a framework for assessing systemic risks and for predicting (out-of-sample) systemic events, i.e. periods of extreme financial instability with potential real costs. We test the ability of a wide range of “stand alone” and composite indicators in predicting systemic events and evaluate them by taking into account policy makers’ preferences between false alarms and missing signals. Our results highlight the importance of considering jointly various indicators in a multivariate framework. We find that taking into account jointly domestic and global macrofinancial vulnerabilities greatly improves the performance of discrete choice models in forecasting systemic events. Our framework shows a good out-of-sample performance in predicting the last financial crisis. Finally, our model would have issued an early warning signal for the United States in 2006 Q2, 5 quarters before the emergence of money markets tensions in August 2007

Keywords

Early warning Indicators, Asset Price Booms and Busts, Financial Stress, Macro-Prudential Policies

URL

http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1311.pdf

Record ID

129     [ Page 19 of 23, No. 9 ]

Date

2011-01

Author

Rochelle M. Edge and Refet S. Gurkaynak

Affiliation

Federal Reserve Board and Bilkent University

Title

How useful are estimated DSGE model forecasts?

Summary /
Abstract

DSGE models are a prominent tool for forecasting at central banks and the competitive forecasting performance of these models relative to alternatives--including official forecasts--has been documented. When evaluating DSGE models on an absolute basis, however, we find that the benchmark estimated medium scale DSGE model forecasts inflation and GDP growth very poorly, although statistical and judgmental forecasts forecast as poorly. Our finding is the DSGE model analogue of the literature documenting the recent poor performance of macroeconomic forecasts relative to simple naive forecasts since the onset of the Great Moderation. While this finding is broadly consistent with the DSGE model we employ--ie, the model itself implies that under strong monetary policy especially inflation deviations should be unpredictable--a "wrong" model may also have the same implication. We therefore argue that forecasting ability during the Great Moderation is not a good metric to judge the usefulness of model forecasts.

Keywords

Economic forecasting ; Inflation (Finance) ; Econometric models

URL

http://www.federalreserve.gov/pubs/feds/2011/201111/201111pap.pdf

Record ID

128     [ Page 19 of 23, No. 10 ]

Date

2011-03

Author

Timothy Cogley, Bianca de Paoli, Christian Matthes, Nikolov Kalin, and Tony Yates

Affiliation

New York University, Bank of England, Universitat Pompeu Fabra, European Central Bank, and Bank of England

Title

A Bayesian approach to optimal monetary policy with parameter and model uncertainty

Summary /
Abstract

This paper undertakes a Bayesian analysis of optimal monetary policy for the United Kingdom. We estimate a suite of monetary policy models that include both forward and backward-looking representations as well as large and small-scale models. We find an optimal simple Taylor-type rule that accounts for both model and parameter uncertainty. For the most part, backward-looking models are highly fault tolerant with respect to policies optimised for forward-looking representations, while forward-looking models have low fault tolerance with respect to policies optimised for backward-looking representations. In addition, backward-looking models often have lower posterior probabilities than forward-looking models. Bayesian policies therefore have characteristics suitable for inflation and output stabilisation in forward-looking models.

Keywords

Monetary policy models, model and parameter uncertainty, backward and forward Looking representations, Bayesian analysis and estimation

URL

http://www.bankofengland.co.uk/publications/workingpapers/wp414.pdf

Record ID

127     [ Page 19 of 23, No. 11 ]

Date

2011-02

Author

Strategy Policy and Review Department

Affiliation

IMF

Title

2011 Triennial Surveillance Review and Review of the 2007 Decision: Concept Note

Summary /
Abstract

Over the past three years, the IMF has worked to assist members in addressing the repercussions of the global financial crisis while also tackling gaps in its surveillance framework that the crisis laid bare. This reform agenda has drawn extensively from the recommendations of the 2008 Triennial Surveillance Review (TSR), as well as subsequent IMF and IEO reviews of the Fund's performance in the run-up to the crisis. This TSR provides an opportunity to take stock of the steps taken and to assess recent experience with surveillance.

Keywords

Bilateral and Multilateral Surveillance, Financial Crisis, Risk Management

URL

http://www.imf.org/external/np/pp/eng/2011/021411.pdf

Record ID

126     [ Page 19 of 23, No. 12 ]

Date

2011-03

Author

Michele Berardi

Affiliation

University of Manchester

Title

On the stability properties of optimal interest rules under learning

Summary /
Abstract

In recent literature on monetary policy, it has been argued that a sensible policy rule should be able to induce learnability of the fundamental equilibrium: if private agents update their beliefs over time using adaptive learning technques, they should be able to converge towards rationality. Evans and Honkapohja (2003) showed that in a New Keynesian model an expectations based rule has such a desirable property, while a fundamentals based one does not. In order to implement an expectations based rule, though, the policymaker needs to observe private sector expectations. We show that there exists an alternative rule, based only on fundamentals, that can achieve the same positive results in terms of stability of private sector?s learning dynamics. Moreover, such a rule is learnable by the policymaker, and the combined learning dynamics of the private sector and the central bank make the economy converge to the fundamental equilibrium.

Keywords

Monetary policy, expectations, learning, E-stability

URL

http://www.socialsciences.manchester.ac.uk/cgbcr/dpcgbcr/dpcgbcr155.pdf

Record ID

125     [ Page 19 of 23, No. 13 ]

Date

2011-03

Author

Irineu de Carvalho Filho

Affiliation

International Monetary Fund

Title

28 Months Later: How Inflation Targeters Outperformed Their Peers in the Great Recession

Summary /
Abstract

Twenty-eight months after the onset of the global financial crisis of August 2008, the evidence on post-crisis GDP growth emerging from a sample of 51 advanced and emerging countries is flattering for inflation targeting countries relative to their peers. The positive effect of IT is not explained away by plausible pre-crisis determinants of post-crisis performance, such as growth in private credit, ratios of short-term debt to GDP, reserves to short-term debt and reserves to GDP, capital account restrictions, total capital inflows, trade openness, current account balance and exchange rate flexibility, or post-crisis drivers such as the growth performance of trading partners and changes in terms of trade. We find that inflation targeting countries lowered nominal and real interest rates more sharply than other countries; were less likely to face deflation scares; and had sharp real depreciations without a relative deterioration in their risk assessment by markets. While the task of establishing causal relationships from cross-sectional macroeconomics series is daunting, our reading of this evidence is consistent with the resilience of IT countries being related to their ability to loosen their monetary policy when most needed, thereby avoiding deflation scares and the zero lower bound on interest rates.

Keywords

Inflation targeting; economic crisis; monetary policy

URL

http://mpra.ub.uni-muenchen.de/29100/2/MPRA_paper_29100.pdf

Record ID

124     [ Page 19 of 23, No. 14 ]

Date

2011-03

Author

Pierre-Richard Agénor, Koray Alper, and Luiz Pereira da Silva

Affiliation

Centre for Growth and Business Cycle Research, Economic Studies, University of Manchester, Central Bank of Turkey, and Central Bank of Brazil

Title

Capital Regulation, Monetary Policy and Financial Stability

Summary /
Abstract

This paper examines the roles of bank capital regulation and monetary policy in mitigating procyclicality and promoting macroeconomic and financial stability. The analysis is based on a dynamic stochastic model with imperfect credit markets. Macroeconomic (financial) stability is defined in terms of the volatility of nominal income (real house prices). Numerical experiments show that even if monetary policy can react strongly to inflation deviations from target, combining a credit-augmented interest rate rule and a Basel III-type countercyclical capital regulatory rule may be optimal for promoting overall economic stability. The greater the degree of interest rate smoothing, and the stronger the policymaker's concern with macroeconomic stability, the larger is the sensitivity of the regulatory rule to credit growth gaps.

URL

http://www.socialsciences.manchester.ac.uk/cgbcr/dpcgbcr/dpcgbcr154.pdf

Record ID

123     [ Page 19 of 23, No. 15 ]

Date

2011-02

Author

Brissimis, Sophocles and Migiakis, Petros

Affiliation

Bank of Greece

Title

Inflation persistence and the rationality of inflation expectations

Summary /
Abstract

The rational expectations hypothesis for survey and model-based inflation forecasts − from the Survey of Professional Forecasters and the Greenbook respectively − is examined by properly taking into account the persistence characteristics of the data. The finding of near-unit-root effects in the inflation and inflation expectations series motivates the use of a local-to-unity specification of the inflation process that enables us to test whether the data are generated by locally non-stationary or stationary processes. Thus, we test, rather than assume, stationarity of near-unit-root processes. In addition, we set out an empirical framework for assessing relationships between locally non-stationary series. In this context, we test the rational expectations hypothesis by allowing the co-existence of a long-run relationship obtained under the rational expectations restrictions with short-run "learning" effects. Our empirical results indicate that the rational expectations hypothesis holds in the long run, while forecasters adjust their expectations slowly in the short run. This finding lends support to the hypothesis that the persistence of inflation comes from the dynamics of expectations.

Keywords

Inflation; rational expectations; high persistence

URL

http://mpra.ub.uni-muenchen.de/29203/1/MPRA_paper_29203.pdf

Record ID

122     [ Page 19 of 23, No. 16 ]

Date

2011-03

Author

Sami Alpanda, Kevin Kotze and Geoffrey Woglom

Affiliation

Amherst College and University of Cape Town

Title

Forecasting Performance of an Estimated DSGE Model for the South African Economy

Summary /
Abstract

We construct a small open-economy New Keynesian dynamic stochastic general equilibrium
(DSGE) model for South Africa with nominal rigidities, incomplete international risk sharing and
partial exchange rate pass-through. The parameters of the model are estimated using Bayesian
methods, and its out-of-sample forecasting performance is compared with Bayesian vector
autoregression (VAR), classical VAR and random-walk models. Our results indicate that the
DSGE model generates forecasts that are competitive with those from other models, and it
contributes statistically significant information to combined forecast measures.

Keywords

Forecasting, open-economy DSGE model, Bayesian estimation

URL

http://onlinelibrary.wiley.com/doi/10.1111/j.1813-6982.2011.01260.x/pdf

Record ID

121     [ Page 19 of 23, No. 17 ]

Date

2006-07

Author

Alan Blinder

Affiliation

Princeton University

Title

Monetary Policy Today: Sixteen Questions and about Twelve Answers

Summary /
Abstract

My assignment is to survey the main questions swirling around monetary policy today. I emphasize three words in this sentence, each for a different reason. “Main” is because one person’s side issue is another’s main issue. So I had to be both selective and judgmental in compiling my list, else this paper would have been even longer than it is. “Policy” indicates that I have restricted myself to issues that are truly relevant to real-world policymakers, thus omitting many interesting but purely academic issues. “Today” means that I focus on current issues, thus passing over some illustrious past issues. All these omissions still leave a rather long list; so I will treat some issues quite briefly.

Keywords

Monetary policy, transparency, inflation targeting, decision-making, bank supervision and examination

URL

http://www.princeton.edu/~ceps/workingpapers/129blinder.pdf

Record ID

120     [ Page 19 of 23, No. 18 ]

Date

2011-02

Author

Beidas-Strom, Samya and Poghosyan, Tigran

Affiliation

Middle East and Central Asia Department, IMF

Title

An Estimated Dynamic Stochastic General Equilibrium Model of the Jordanian Economy

Summary /
Abstract

This paper presents and estimates a small open economy dynamic stochastic general-equilibrium model (DSGE) for the Jordanian economy. The model features nominal and real rigidities, imperfect competition and habit formation in the consumer’s utility function. Oil imports are explicitly modeled in the consumption basket and domestic production. Bayesian estimation methods are employed on quarterly Jordanian data. The model’s properties are described by impulse response analysis of identified structural shocks pertinent to the economy. These properties assess the effectiveness of the pegged exchange rate regime in minimizing inflation and output trade-offs. The estimates of the structural parameters fall within plausible ranges, and simulation results suggest that while the peg amplifies output, consumption and (price and wage) inflation volatility, it offers a relatively low risk premium.

Keywords

DSGE; Bayesian Estimation; Jordan; Monetary and Exchange Rate Policy

URL

http://www.imf.org/external/pubs/ft/wp/2011/wp1128.pdf

Record ID

119     [ Page 19 of 23, No. 19 ]

Date

2011-01

Author

de la Torre, Augusto, and Ize, Alain

Affiliation

World Bank

Title

Containing systemic risk: paradigm-based perspectives on regulatory reform

Summary /
Abstract

Financial crises can happen for a variety of reasons: (a) nobody really understands what is going on (the collective cognition paradigm); (b) some understand better than others and take advantage of their knowledge (the asymmetric information paradigm); (c) everybody understands, but crises are a natural part of the financial landscape (the costly enforcement paradigm); or (d) everybody understands, yet no one acts because private and social interests do not coincide (the collective action paradigm). The four paradigms have different and often conflicting prudential policy implications. This paper proposes and discusses three sets of reforms that would give due weight to the insights from the collective action and collective cognition paradigms by redrawing the regulatory perimeter to internalize systemic risk without promoting dynamic regulatory arbitrage; introducing a truly systemic liquidity regulation that moves away from a purely idiosyncratic focus on maturity mismatches; and building up the supervisory function while avoiding the pitfalls of expanded official oversight.

Keywords

Financial crises; financial policy; financial regulation; financial development; regulatory architecture

URL

http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2011/01/05/000158349_20110105150802/Rendered/PDF/WPS5523.pdf

Record ID

118     [ Page 19 of 23, No. 20 ]

Date

2011-02

Author

Bayoumi, Tamim and Darius, Reginald

Affiliation

Strategy, Policy, and Review Department, IMF

Title

Reversing the Financial Accelerator: Credit Conditions and Macro-Financial Linkages

Summary /
Abstract

This paper examines the role of credit markets in the transmission of U.S. macro-financial shocks through the prism of a financial conditions index (FCI) based on a vector autoregression (VAR) methodology. It explores the relative predictive power of market variables compared to credit standards/conditions. The main conclusion is that under plausible specifications credit conditions dominate market variables, highlighting the importance of credit supply. The fact that direct measures of credit conditions anticipate future movements in asset prices has an extremely important implication. Most models of the credit channel see it as an amplifier of underlying changes in financial wealth. The impact of credit conditions on growth compared to other market variables implies that credit supply drives other financial variables rather than responding to them.

Keywords

Output, Financial conditions index, credit conditions

URL

http://www.imf.org/external/pubs/ft/wp/2011/wp1126.pdf

Record ID

117     [ Page 19 of 23, No. 21 ]

Date

2011-02

Author

Aruoba, S. Boragan, Diebold, Francis X., Kose, M. Ayhan, and Terrones, Marco

Affiliation

Research Department, IMF

Title

Globalization, the Business Cycle, and Macroeconomic Monitoring

Summary /
Abstract

We propose and implement a framework for characterizing and monitoring the global business cycle. Our framework utilizes high-frequency data, allows us to account for a potentially large amount of missing observations, and is designed to facilitate the updating of global activity estimates as data are released and revisions become available. We apply the framework to the G-7 countries and study various aspects of national and global business cycles, obtaining three main results. First, our measure of the global business cycle, the common G-7 real activity factor, explains a significant amount of cross-country variation and tracks the major global cyclical events of the past forty years. Second, the common G-7 factor and the idiosyncratic country factors play different roles at different times in shaping national economic activity. Finally, the degree of G-7 business cycle synchronization among country factors has changed over time.

Keywords

Expansion, Contraction, Recession, Turning Point, Dynamic factor model, Nowcasting, Real-time analysis

URL

http://www.imf.org/external/pubs/ft/wp/2011/wp1125.pdf

Record ID

116     [ Page 19 of 23, No. 22 ]

Date

2011-01

Author

Bianchi, Javier and Mendoza, Enrique G.

Affiliation

Research Department, IMF

Title

Overborrowing, Financial Crises and ‘Macro-prudential’ Policy

Summary /
Abstract

This paper studies overborrowing, financial crises and macro-prudential policy in an equilibrium model of business cycles and asset prices with collateral constraints. Agents in a decentralized competitive equilibrium do not internalize the negative effects of asset fire-sales on the value of other agents' assets and hence they borrow too much" ex ante, compared with a constrained social planner who internalizes these effects. Average debt and leverage ratios are slightly larger in the competitive equilibrium, but the incidence and magnitude of financial crises are much larger. Excess asset returns, Sharpe ratios and the market price of risk are also much larger. State-contigent taxes on debt and dividends of about 1 and -0.5 percent on average respectively support the planner’s allocations as a competitive equilibrium and increase social welfare.

Keywords

Financial crises, amplification effects, business cycles, fire-sales

URL

http://www.imf.org/external/pubs/ft/wp/2011/wp1124.pdf

Record ID

115     [ Page 19 of 23, No. 23 ]

Date

2011-01

Author

Bhatia, Ashok Vir

Affiliation

MCM and SPR Departments, IMF

Title

Consolidated Regulation and Supervision in the United States

Summary /
Abstract

This paper builds on a Technical Note produced as part of the IMF’s 2010 Financial Sector Assessment Program (FSAP) review of the United States. It addresses enterprise-wide oversight of financial groups, a key tool to mitigate systemic risk. Focusing on legal arrangements, it recommends eliminating exceptions for holding companies owning certain limited-purpose banks, harmonizing arrangements for bank and thrift holding companies, and bringing into the net a few systemic nonbank financial groups, with the Federal Reserve as the sole consolidated regulator and supervisor.

Keywords

Bank holding company, consoldated regulation, consolidated supervision, investment banking group, savings and loan holding company

URL

http://www.imf.org/external/pubs/ft/wp/2011/wp1123.pdf

Record ID

114     [ Page 19 of 23, No. 24 ]

Date

2010-12

Author

Igor Vetlov, Ricardo Mourinho Felix, Laure Frey, Tibor Hledik, Zoltan Jakab, Niki Papadopoulou, Lukas Reiss Martin Schneider

Affiliation

Bank of Lithuania, Banco de Portugal, Banque de France, Czech National Bank, Office of the Fiscal Council Republic of Hungary, Central Bank of Cyprus, Oesterreichische Nationalbank and Oesterreichische

Title

The Implementation of Scenarios using DSGE Models

Summary /
Abstract

The new generation of dynamic stochastic general equilibrium (DSGE) models seems particularly suited for conducting scenario analysis. These models formalise the behaviour of economic agents on the basis of explicit micro-foundations. As a result, they appear less prone to the Lucas critique than traditional macroeconometric models. DSGE models provide researchers with powerful tools, which allow for the design of a broad range of scenarios and can tackle a large range of issues, while at the same time offering an appealing structural interpretation of the scenario specification and simulation results. This paper provides illustrations of some of the modelling issues that often arise when implementing scenarios using DSGE models in the context of projection exercises or policy analysis. These issues reflect the sensitivity of DSGE model-based analysis to scenario assumptions, which in more traditional models are apparently less critical, such as, for example, scenario event anticipation and duration, as well as treatment of monetary and fiscal policy rules.

Keywords

Business fluctuations, monetary policy, fiscal policy, forecasting and simulation

URL

http://www.centralbank.gov.cy/media/pdf/NPWPE_No10_102010.pdf

Record ID

113     [ Page 19 of 23, No. 25 ]

Date

2011-01

Author

Dabán Sánchez, Teresa

Affiliation

International Monetary Fund

Title

Strengthening Chile's Rule-Based Fiscal Framework

Summary /
Abstract

The cornerstone of Chile’s impressive fiscal performance has been its structural balance rule. By insulating public spending from short-term copper price fluctuations and the business cycle, the rule has helped preserve fiscal discipline. However, the implementation of the rule in recent years has revealed certain challenges, and in May 2010, the government established a high-level commission to recommend reforms that could make the rule even more effective. This paper assesses the scope for improving the design and implementation of the structural balance rule in light of best practices and OECD country experience with fiscal rules. This assessment suggests several options to strengthen Chile’s fiscal rule, including by simplifying the calculation of the structural balance; enhancing the rule’s flexibility, transparency and accountability; and complementing it with a medium-term fiscal framework.

Keywords

Fiscal rules, structural balance, resource revenue management, resource curse, public financial management, transparency, accountability, resource-producing countries.

URL

http://www.imf.org/external/pubs/ft/wp/2011/wp1117.pdf

Remarks

The Philippine fiscal performance over the long haul can be vastly improved by implementing Chile's structural balance rule, tailored to Philippine circumstances. The attached paper explains this fiscal framework and discusses recent policy proposals to make it even more effective.

Record ID

112     [ Page 19 of 23, No. 26 ]

Date

2005-08

Author

Scott Roger and Mark Stone

Affiliation

International Monetary Fund

Title

On Target? The International Experience with Achieving Inflation Targets

Summary /
Abstract

This paper examines the international experience with full-fledged inflation targeting monetary regimes. Stylized facts are brought together from a review of the institutional elements of inflation targeting frameworks, a comparison of actual and targeted inflation outcomes, and case studies of large inflation target misses. Inflation targets are missed about 40 percent of the time and often by substantial amounts and for prolonged periods, yet no country has dropped inflation targeting. The resilience of the inflation targeting regime is attributable to the flexibility of the framework, its high standards of transparency and accountability, and the lack of realistic alternatives.

Keywords

Inflation targeting, monetary policy

URL

http://www.imf.org/external/pubs/ft/wp/2005/wp05163.pdf

Remarks

The only paper quoted by RBNZ Gov Bollard in a speech (30 July 2008) on the flexibility and limits to inflation targeting. See http://dv.data.ph/articles/display.php?id=111.

Record ID

111     [ Page 19 of 23, No. 27 ]

Date

2008-09

Author

Alan Bollard and Tim Ng

Affiliation

Reserve Bank of New Zealand

Title

Flexibility and the limits to inflation targeting

Summary /
Abstract

This article reproduces the paper for a speech given by Governor Alan Bollard on 30 July 2008. We argue that New Zealand’s flexible inflation-targeting framework serves the economy well, but one should not to ask too much of it. Inflation targeting is the best approach New Zealand and many other similar countries have yet found for monetary policy, among a limited number of viable alternatives. The fact remains that the New Zealand economy is subject to powerful forces, and monetary policy can only do so much to buffer the shocks. When shocks are persistent, as with oil and food prices currently, it is difficult to judge the appropriate response. Monetary policy needs to allow the initial price changes to occur, but be firm enough to ensure that generalised second-round inflation effects do not take hold. The clear medium-term objective of 1-3 percent inflation helps to anchor inflation expectations, and gives us more scope to accommodate short-term inflation shocks while ensuring that the price stability objective is not undermined in the process.

URL

http://www.rbnz.govt.nz/research/bulletin/2007_2011/2008sep71_3bollardng.pdf

Record ID

110     [ Page 19 of 23, No. 28 ]

Date

2010-03

Author

Jaromir Beneš, Kevin Clinton, Marianne, Johnson, Douglas Laxton, and Troy Matheson

Affiliation

IMF

Title

Structural Models in Real Time

Summary /
Abstract

This paper outlines a simple approach for incorporating extraneous predictions into structural models. The method allows the forecaster to combine predictions derived from any source in a way that is consistent with the underlying structure of the model. The method is flexible enough that predictions can be up-weighted or down-weighted on a case-by-case basis. We illustrate the approach using a small quarterly structural and real-time data for the United States.

Keywords

High frequency indicators, Monetary Policy, Forecasting

URL

http://www.imf.org/external/pubs/ft/wp/2010/wp1056.pdf

Record ID

109     [ Page 19 of 23, No. 29 ]

Date

2010-07

Author

Takatoshi Ito

Affiliation

University of Tokyo

Title

Monetary Policy and Financial Stability: Is Inflation Targeting Passé?

Summary /
Abstract

It would be easy to say that central banks should consider asset prices as one of the objectives to avoid boom and bust cycles, as happened in the 2007–2009 crisis; the dotcom bubble of 2001; and the Japanese boom and bust of the 1980s and 1990s. However, its implementation would be theoretically and empirically difficult since the monetary policy instrument, narrowly defined, is just the interest rate. Flexible inflation targeting (FIT) is basically a sound monetary policy framework even after experiencing a severe financial crisis, as what originated in the United States. Assigning too much weight to asset prices as a monetary policy objective would cause a serious tradeoff problem. Consumer price index deflation may have to be tolerated to avoid an asset bubble, which would be a serious problem, since once a bubble is formed, a slight increase in the interest rate would not stop it. The first-best policy is to enhance supervision and regulation of financial institutions to avoid moral hazard and concentration of risk.

Keywords

Inflation targeting, financial stability, asset price bubble, supervision and regulation

URL

http://www.adb.org/Documents/Working-Papers/2010/Economics-WP206.pdf

Remarks

This is a very good paper by Prof Ito. Its emphasis on flexible inflation targeting is reminiscent of the position taken by Ben Bernanke and Rick Mishkin, and its first-best policy of enhanced financial oversight is well placed.

Record ID

108     [ Page 19 of 23, No. 30 ]

Date

2009-09

Author

Philipp Maier

Affiliation

Bank of Canada

Title

Conference Summary: International Experience with the Conduct of Monetary Policy under Inflation Targeting

Summary /
Abstract

Central bankers from inflation-targeting and non-inflation-targeting countries around the world and several distinguished scholars assembled at the Bank of Canada in July 2008 to review the international experience in some detail. This article highlights topics covered in the special lectures and sessions, including how inflation targeting can manage external shocks, various ways in which monetary policy decisions are taken, and the issues of transparency and communications. It also reports on the discussion in the closing panel, which considered options for the future of inflation targeting.

Keywords

Monetary policy, inflation targeting

URL

http://www.bankofcanada.ca/en/review/winter08-09/maier.pdf

Remarks

The Bank of Canada's annual research conference, held in July 2008, examined central banks’ experiences with the conduct of monetary policy under inflation targeting. Since the introduction of inflation targeting by New Zealand in 1990, and the formal adoption of inflation targets by the Bank of Canada in 1991, inflation targeting has become a popular monetary policy framework. For Canada, inflation targeting has contributed to keeping total CPI inflation very close to 2 per cent, on average, since 1991. The reduction in inflation, coupled with an explicit commitment to keep inflation low, stable, and predictable, has helped to anchor inflation expectations close to the 2 per cent inflation target as well. Since other countries that have introduced inflation targeting have had similar experiences, inflation targeting is often credited as a monetary policy framework that can keep inflation low and stable, and thus contribute to sound and stable macroeconomic performance.