Record ID

13     [ Page 64 of 68, No. 1 ]

Date

2010-08-01

Author

André Meie

Affiliation

IMF

Title

Still Minding the Gap - Inflation Dynamics during Episodes of Persistent Large Output Gaps

Summary /
Abstract

This paper studies inflation dynamics during 25 historical episodes in advanced economies where output remained well below potential for an extended period. We find that such episodes generally brought about significant disinflation, underpinned by weak labor markets, slowing wage growth, and, in many cases, falling oil prices. Indeed, inflation declined by about the same fraction of the initial inflation rate across episodes. That said, disinflation has tended to taper off at very low positive inflation rates, arguably reflecting downward nominal rigidities and well-anchored inflation expectations. Temporary inflation increases during episodes were, in turn, systematically related to currency depreciation or higher oil prices. Overall, the historical patterns suggest little upside inflation risk in advanced economies facing the prospect of persistent large output gaps.

Source: IMF Working Paper No. 10/189

URL

http://www.imf.org/external/pubs/cat/longres.cfm?sk=24144.0

Record ID

15     [ Page 64 of 68, No. 2 ]

Date

2010-08-01

Author

Emanuele Baldacci and Manmohan S. Kumar

Affiliation

IMF

Title

Fiscal Deficits, Public Debt, and Sovereign Bond Yields

Summary /
Abstract

The recent sharp increase in fiscal deficits and government debt in many countries raises questions regarding their impact on long-term sovereign bond yields. While economic theory suggests that this impact is likely to be adverse, empirical results have been less clear cut, have generally ignored nonlinear effects of deficits and debt through some other key determinants of yields, and have been mostly confined to advanced economies. This paper reexamines the impact of fiscal deficits and public debt on long-term interest rates during 1980 - 2008, taking into account a wide range of country-specific factors, for a panel of 31 advanced and emerging market economies. It finds that higher deficits and public debt lead to a significant increase in long-term interest rates, with the precise magnitude dependent on initial fiscal, institutional and other structural conditions, as well as spillovers from global financial markets. Taking into account these factors suggests that large fiscal deficits and public debts are likely to put substantial upward pressures on sovereign bond yields in many advanced economies over the medium term.

Source: IMF Working Paper No. 10/184

URL

http://www.imf.org/external/pubs/cat/longres.cfm?sk=24130.0

Remarks

The result from the attached paper is not good news for the trajectory of the Philippine fiscal deficit and government debt, which will increase long-term interest rates, to the detriment of long-run economic growth.

Record ID

8     [ Page 64 of 68, No. 3 ]

Date

2010-08

Author

Carmen Reinhart and Kenneth Rogoff

Affiliation

IMF

Title

Debt and Growth Revisited

Summary /
Abstract

In a recent paper, we studied economic growth and inflation at different levels of government and external debt. The public discussion of our empirical strategy and results has been somewhat muddled. Here, we attempt to clarify matters, particularly with respect sample coverage (our evidence encompasses forty-four countries over two centuries--not just the United States), debt-growth causality (our book emphasizes the bi-directional nature of the relationship), as well as nonlinearities in the debt-growth connection and thresholds evident in the data (absolutely central points that seem to have been lost in some commentary.) In addition to clarifying the earlier results, this paper enriches our original analysis by providing further discussion of the high debt (over 90 percent of GDP) episodes and their incidence. Some of the implications of our analysis, including for the United States, are taken up in the final section.

http://d.repec.org/n?u=RePEc:pra:mprapa:24376&r=mac

Keywords

debt; growth; crisis; advanced economies; historical

URL

http://mpra.ub.uni-muenchen.de/24376/

Remarks

This is an excellent study by two of my ex-colleagues at the IMF. Their empirical threshold of 60% of GDP for external debt above which negative growth effects show up is close to the upper limit of 52% of GDP produced by Ch 3, External Debt, Adjustment, and Growth in my book, Macroeconomic Policies for Stable Growth (2008, World Scientific).

Record ID

10     [ Page 64 of 68, No. 4 ]

Date

2010-08

Author

Peter Spahn

Title

Asset Prices, Inflation and Monetary Control - Re-inventing Money as a Policy Tool

Summary /
Abstract

Low inflation on goods markets provides no reliable precondition for asset-market stability; it might even promote the emergence of bubbles because interest rates and risk premia appear to be low. A further factor driving asset demand is easy availability of credit, which in turn roots in the banking system operating in a regime of endogenous central-bank money. A comparison of Bundesbank and ECB policies suggests that credit growth can be controlled more efficiently if rising interest rates are accompanied by some liquidity squeeze that supports the spillover of a monetary restriction to capital markets. The announcement effect of a central bank Charter including the goal of financial-market stability helps to deter private agents from excessive asset trading.

URL:http://d.repec.org/n?u=RePEc:hoh:hohdip:323&r=mac
- http://www.uni-hohenheim.de/RePEc/hoh/papers/323.pdf

Keywords

open-market policy; asset-price bubble; euro money market; ECB strategy

URL

http://d.repec.org/n?u=RePEc:hoh:hohdip:323&r=mac

Remarks

A very useful study

Record ID

7     [ Page 64 of 68, No. 5 ]

Date

2010-07-31

Author

Paul Levine

Affiliation

University of Surrey

Title

Monetary Policy in an Uncertain World: Probability Models and the Design of Robust Monetary Rules

Summary /
Abstract

The past forty years or so has seen a remarkable transformation in macro-models used by central banks, policymakers and forecasting bodies.This paper describes this transformation from reduced-form behavioural equations estimated separately, through to contemporary micro-founded dynamic stochastic general equilibrium (DSGE) models estimated by systems methods.

Keywords

structured uncertainty, DSGE models, robustness, Bayesian estimation, interest-rate rules

URL

http://www.esocialsciences.com/data/articles/document11182010520.771557.pdf

Remarks

This is a very useful survey of central bank modeling -
http://d.repec.org/n?u=RePEc:ess:wpaper:id:2761&r=mon

Record ID

24     [ Page 64 of 68, No. 6 ]

Date

2010-07-13

Author

IMF

Title

IMF Book - Global Economic Crisis: Reconstructing the World Economy

Summary /
Abstract

This volume presents papers from a conference organized by the Korea Development Institute and the IMF. The purpose of this high-level conference was for policymakers and academics from the Asian region and from G-20 countries to discuss forward-looking economic and financial issues of interest to the international community, such as restoring normalcy to fiscal policy, macroprudential regulation, the future of the financial system, global fiscal imbalances, and the international monetary system. Topics include: (1) A strategy for renormalizing fiscal and monetary policies in advanced economies. Key principles for restoring financial stability in the wake of the crisis, including the timing and sequence for exit, are identified. (2) Rethinking macroeconomic policy. This section examines if and how macroeconomic policy should respond to sectoral imbalances and asset-price and housing imbalances, as well as a potential role for macroprudential regulation. (3) Redesigning the financial system of the future. Responses by both policymakers and the private sector to recent events are evaluated in terms of how they will shape the future financial system and its role in the global economy. (4) Global imbalances. The argument is made that there is an urgent need to address the domestic and international distortions that are a key cause of imbalances; failure to do so would threaten the sustainability of the recovery. (5) The future of the international monetary system. Steps that can be taken to address the inherent weaknesses in the current system are described, including possible solutions on both the demand side and on the supply side.

URL

http://www.imf.org/external/pubs/ft/survey/so/2010/bok071310a.htm

Remarks

As the world emerges from the worst crisis in decades, the IMF is examining how macroeconomic and financial policy should be adjusted to take account of the new challenges facing global policymakers.

A new IMF book, Reconstructing the World Economy, presents a number of proposals to improve the stability of the global economy in light of the recent crisis.

In addition to discussing the immediate policy challenges, such as when to exit from stimulus measures, the book considers issues of a longer-term nature, such as how to correct flaws in the prevailing macroeconomic policy framework, redesign financial regulation and supervision, and strengthen the international financial architecture.

Edited by IMF Chief Economist Olivier Blanchard and Il SaKong, Chairman of the Presidential Committee for the Group of Twenty (G-20) summit of industrial and emerging market countries, the book is based on five papers prepared by IMF economists for a workshop last February in Seoul, Korea. The workshop provided an initial forum for discussing these challenges, a topic that will be taken up again in November at the G-20 summit in Seoul.

The conference volume is being released as the IMF and the Korean government conclude a jointly organized high-level conference to examine Asia’s economic dynamism and evolving role in international policymaking.

Reconstructing the World Economy contains the Seoul conference papers on the five topics listed below, as well as comments by eminent policymakers and academics, including Charles Bean, deputy governor of the Bank of England; Justin Lin, chief economist of the World Bank; Philip Lowe, assistant governor of the Reserve Bank of Australia, and Yung Chul Park, professor of economics at Korea University, among others.

Record ID

27     [ Page 64 of 68, No. 7 ]

Date

2010-07-07

Author

IMF

Title

GFSR Market Update

Summary /
Abstract

Financial Market Update -- July, 2010: Despite generally improved economic conditions and a long period of healing after the failure of Lehman Brothers, progress toward global financial stability has recently experienced a setback. Sovereign risks in parts of the euro area have materialized and spread to the financial sector there, threatening to spill over to other regions and re-establish an adverse feedback loop with the economy. Further decisive follow-up is needed to the significant national and supranational policy responses that have been taken in order to strengthen confidence in the financial system and ensure continuation of the economic recovery. Text also available in:

URL

http://www.imf.org/External/Pubs/FT/fmu/eng/2010/02/index.htm

Record ID

17     [ Page 64 of 68, No. 8 ]

Date

2010-07-01

Author

Stephen Tokarick

Affiliation

IMF

Title

A Method for Calculating Export Supply and Import Demand Elasticities

Summary /
Abstract

Trade elasticities are often needed in applied country work for various purposes and this paper describes a method for estimating import demand and export supply elasticities without using econometrics. The paper reports empirical estimates of these elasticities for a large number of low, middle, and upper income countries. One task for which trade elasticities are needed is in developing exchange rate assessments and this paper shows how the estimated elasticities can be used for this purpose.

Source:

URL

http://www.imf.org/external/pubs/cat/longres.cfm?sk=24117.0

Remarks

Useful paper. Contains estimates for the Philippines. Certainly useful for the hands-on computer exercises involving FPP courses and other applied country work for policy and other purposes....

Record ID

4     [ Page 64 of 68, No. 9 ]

Date

2010-07

Author

Vasco Curdia and Michael Woodford

Affiliation

Federal Reserve Bank of New York and Columbia University - Department of Economics

Title

The Central Bank Balance Sheet as an Instrument of Monetary Policy

Summary /
Abstract

While many analyses of monetary policy consider only the adjustment of a central bank's target for a short-term nominal interest rate, other dimensions of policy have recently been of greater importance: changes in the supply of bank reserves beyond those required to achieve an interest-rate target, changes in the assets acquired by central banks, and changes in the interest rate paid on reserves. We extend a standard New Keynesian model to allow a role for the central bank's balance sheet in equilibrium determination, and consider the connections between these alternative dimensions of policy and traditional interest-rate policy. We distinguish between "quantitative easing" in the strict sense and targeted asset purchases by a central bank, and argue that while the former is likely be ineffective at all times, the latter dimension of policy can be effective when financial markets are sufficiently disrupted. Neither is a perfect substitute for conventional interest-rate policy, but purchases of illiquid assets are particularly likely to improve welfare when the zero lower bound on the policy rate is reached. We also consider optimal policy with regard to the payment of interest on reserves, and argue that the interest rate on reserves should be kept near the central bank's target for the policy rate at all times.

URL: http://d.repec.org/n?u=repec:clu:wpaper:0910-16&r=mac
- http://www.newyorkfed.org/research/staff_reports/sr463.html
- http://www.newyorkfed.org/research/staff_reports/sr463.pdf

Keywords

Banks and banking, Central ; Monetary policy ; Interest rates ; Bank reserves

URL

http://www.newyorkfed.org/research/staff_reports/sr463.pdf

Record ID

11     [ Page 64 of 68, No. 10 ]

Date

2010-07

Author

Libero Monteforte and Gianluca Moretti

Affiliation

Bank of Italy

Title

Real time forecasts of inflation: the role of financial variables

Summary /
Abstract

We present a mixed-frequency model for daily forecasts of euro area inflation. The model combines a monthly index of core inflation with daily data from financial markets; estimates are carried out with the MIDAS regression approach. The forecasting ability of the model in real-time is compared with that of standard VARs and of daily quotes of economic derivatives on euro area inflation. We find that the inclusion of daily variables helps to reduce forecast errors with respect to models that consider only monthly variables. The mixed-frequency model also displays superior predictive performance with respect to forecasts solely based on economic derivatives.

URL:http://d.repec.org/n?u=RePEc:bdi:wptemi:td_767_10&r=mac

Keywords

forecasting inflation, real time forecasts, dynamic factor models, MIDAS regression, economic derivatives

URL

http://www.bancaditalia.it/pubblicazioni/econo/temidi/td10/td767_10/en_td_767_10/en_tema_767.pdf

Remarks

This methodology belongs to the class of mixed-frequency models, and is called MIxed DAta Sampling regression model (MIDAS). It may be potentially useful for your inflation forecasts. It incorporates daily prices of relevant commodities and …financial assets into a monthly forecasting model of inflation.