Selected Reference and Reading Materials compiled by Dan Villanueva

Selected Reference and Reading Materials compiled by Dan Villanueva

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Record ID	77 [ Page 7 of 7, No. 1 ]
Date	2010-09
Author	Laura Valderrama
Affiliation	International Monetary Fund
Title	Macroprudential Regulation under Repo Funding
Summary / Abstract	The use of collateral has become one of the most widespread risk mitigation techniques. While it brings stabilizing effects to the individual lender we argue that it may exacerbate systemic risk through margin call activation. We show how a liquidity shock to the cash lender may propagate as a solvency shock via liquidity hoarding even if the cash lender remains solvent in all states of nature. Albeit a cost-effective response of the cash lender to a liquidity shock, liquidity hoarding may lead to the bankruptcy of its repo counterparties triggering contagion across asset classes. To buttress the resilience of the financial system, we lay out a menu of macroprudential policies that deactivate this channel of financial contagion
Keywords	Repurchase Agreement; Haircut; Margin Call; Liquidity Hoarding; Systemic Risk; Financial Contagion; Macroprudential Regulation
URL	http://www.imf.org/external/pubs/ft/wp/2010/wp10220.pdf
Remarks	The author proposes strengthened liquidity ratios and stronger capital buffer in exchange for deactivating the use of collateral as a risk mitigating technique (when in fact it can exacerbate systemic risk through margin call activation).

Record ID	76 [ Page 7 of 7, No. 2 ]
Date	2010-09
Author	Stéphane Dées, M. Hashem Pesaran, L. Vanessa Smith, Ron P. Smith
Affiliation	European Central Bank, Cambridge University, Birkbeck College
Title	Supply, demand and monetary policy shocks in a multi-country New Keynesian Model
Summary / Abstract	This paper estimates and solves a multi-country version of the standard DSGE New Keynesian (NK) model. The country-specific models include a Phillips curve determining inflation, an IS curve determining output, a Taylor Rule determining interest rates, and a real effective exchange rate equation. The IS equation includes a real exchange rate variable and a countryspecific foreign output variable to capture direct inter-country linkages. In accord with the theory all variables are measured as deviations from their steady states, which are estimated as long-horizon forecasts from a reduced-form cointegrating global vector autoregression. The resulting rational expectations model is then estimated for 33 countries on data for 1980Q1-2006Q4, by inequality constrained IV, using lagged and contemporaneous foreign variables as instruments, subject to the restrictions implied by the NK theory. The multi-country DSGE NK model is then solved to provide estimates of identified supply, demand and monetary policy shocks. Following the literature, we assume that the within country supply, demand and monetary policy shocks are orthogonal, though shocks of the same type (e.g. supply shocks in different countries) can be correlated. We discuss estimation of impulse response functions and variance decompositions in such large systems, and present estimates allowing for both direct channels of international transmission through regression coefficients and indirect channels through error spillover effects. Bootstrapped error bands are also provided for the cross country responses of a shock to the US monetary policy.
Keywords	Global VAR (GVAR), New Keynesian DSGE models, supply shocks, demand shocks, monetary policy shocks.
URL	http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1239.pdf
Remarks	This adds to the toolkit that includes the Global Projection Model (GPM) and the Global Integrated Monetary and Fiscal Model (GIMF) developed at the IMF, which are estimated using Bayesian techniques, whereas the paper by Dees et al uses constrained instrumental variables. Both are versions of DSGE NK models. The IMF global models can be found in http://www.douglaslaxton.org/index.html.

Record ID	75 [ Page 7 of 7, No. 3 ]
Date	2010-09
Author	Lars E O Svensson
Affiliation	Deputy Governor, Sveriges Riksbank
Title	Monetary policy after the financial crisis -- Speech by Mr Lars E O Svensson, Deputy Governor of the Sveriges Riksbank, at the Second International Journal of Central Banking IJCB Fall Conference, Tokyo, 17 September 2010
Summary / Abstract	"My main conclusion from the crisis with regard to monetary policy so far is that flexible inflation targeting – applied in the right way and using all the information about financialconditions that is relevant for the forecast of inflation and resource utilisation at any horizon – remains the best-practice monetary policy before, during, and after the financial crisis. But a better theoretical, empirical and operational understanding of the role of financial conditions and financial intermediation in the transmission mechanism is urgently required and needs much work, work that is already underway in academia and in central banks. Furthermore, monetary policy cannot guarantee financial stability. A separate financial-stability policy, with the objective of financial stability and with suitable instruments other than the policy rate, is required."
Keywords	Monetary policy, financial oversight, financial conditions, financial crisis
URL	http://www.bis.org/review/r100920c.pdf
Remarks	Lars Svensson does not subscribe to the argument advanced by some economists that financial stability should be a third, separate target in the policy reaction function in a flexible inflation targeting framework. Instead, he argues that the goal of financial stability should be handled by another policy instrument, i.e., effective financial oversight and regulation. He calls for more research on the impact of financial conditions on inflation and the output gap. (See the related paper by Adrian and Shin, http://dv.data.ph/articles/display.php?id=71, in which they conclude that the interaction of leverage constraints of financial intermediaries, short-term interest rates, and financial assets is important and should be taken into account in the conduct of monetary policy.)

Record ID	74 [ Page 7 of 7, No. 4 ]
Date	2010-04
Author	Kai Christoffel, Günter Coenen, Anders Warne
Affiliation	European Central Bank
Title	Forecasting with DSGE Models
Summary / Abstract	In this paper we review the methodology of forecasting with log-linearised DSGE models using Bayesian methods. We focus on the estimation of their predictive distributions, with special attention being paid to the mean and the covariance matrix of h-step ahead forecasts. In the empirical analysis, we examine the forecasting performance of the New Area-Wide Model (NAWM) that has been designed for use in the macroeconomic projections at the European Central Bank. The forecast sample covers the period following the introduction of the euro and the out-of-sample performance of the NAWM is compared to nonstructural benchmarks, such as Bayesian vector autoregressions (BVARs). Overall, the empirical evidence indicates that the NAWM compares quite well with the reduced-form models and the results are therefore in line with previous studies. Yet there is scope for improving the NAWM’s forecasting performance. For example, the model is not able to explain the moderation in wage growth over the forecast evaluation period and, therefore, it tends to overestimate nominal wages. As a consequence, both the multivariate point and density forecasts using the log determinant and the log predictive score, respectively, suggest that a large BVAR can outperform the NAWM.
Keywords	Bayesian Inference, DSGE Models, Euro Area, Forecasting, Open-Economy Macroeconomics, Vector Autoregression
URL	http://www.ecb.int/pub/pdf/scpwps/ecbwp1185.pdf
Remarks	The authors compare favorably the forecasting performance of the ECB NAWM DSGE model with that of a BVAR. However, the DSGE model overpredicts nominal wage growth, suggesting a large BVAR can be better. Another alternative to a large BVAR is to incorporate in the DSGE model the structure of the labor market in the euro area as suggested by Levin et al in "Monetary Policy Under Uncertainty in Micro-Founded Macroeconometric Models (2005)" (Record ID 63 in my list of circulated papers).

Record ID	73 [ Page 7 of 7, No. 5 ]
Date	2007-08
Author	Jaromir Benes, Marta Castello Branco, David Vavra
Affiliation	Reserve Bank of New Zealand, IMF
Title	A Simple DGE Model for Inflation Targeting
Summary / Abstract	The paper presents a DGE model designed as a core projection tool to support monetary policy in inflation-targeting (IT) emerging market economies. The paper uses a particularly simple and flexible general equilibrium model structure that can be amended to account for various phenomena that often complicate policy analysis in emerging markets, such as persistent trends in relative prices. The model's calibration is intuitive and can draw on the vast experience many countries have with calibrating small 'gap' models of monetary policy transmission. Moreover, the definition of the model's steady state in terms of nominal expenditure ratios, rather than levels of real variables, allows for the easy use of the model in a regular forecast production cycle in an IT central bank. The paper tests the model's properties on recent Turkish data, demonstrating that the main stylized features relevant for monetary policy making are well captured by the model.
Keywords	Inflation targeting, Economic models, Monetary transmission mechanism
URL	http://www.imf.org/external/pubs/ft/wp/2007/wp07197.pdf
Remarks	This is an applied DSGE model for Turkey, a country that became a full-fledged IT in 2006. A very practical, monetary policy-oriented paper.

Record ID	72 [ Page 7 of 7, No. 6 ]
Date	2010-03
Author	Carl E. Walsh
Affiliation	University of California, Santa Cruz
Title	Commentary: Using Models for Monetary Policy Analysis
Summary / Abstract	Modern policy analysis makes extensive use of dynamic stochastic general equilibrium (DSGE) models. These models differ significantly from earlier generations of large-scale econometric models. I review what I see as major progress in the ability of economists to conduct model-based policy analysis. This progress has come through the evolution in the types of models being used and in a refinement of the types of questions asked of these models.
Keywords	JEL Codes: E17, E52
URL	http://www.ijcb.org/journal/ijcb10q1a13.pdf
Remarks	This is an excellent short commentary by an authority on theoretical and quantitative monetary policy on the evolution of macroeconometrics from the L. Klein days to the present DSGE era, highlighting the similarities and major differences and identifying the areas for improving DSGE modeling.

Record ID	71 [ Page 7 of 7, No. 7 ]
Date	2009-12
Author	Tobias Adrian and Hyun Song Shin
Affiliation	Federal Reserve Bank of New York Princeton University
Title	Prices and Quantities in the Monetary Policy Transmission Mechanism
Summary / Abstract	Central banks have a variety of tools for implementing monetary policy, but the tool that has received the most attention in the literature has been the overnight interest rate. The financial crisis that erupted in the summer of 2007 has refocused attention on other channels of monetary policy, notably the transmission of policy through the supply of credit and overall conditions in the capital markets. In 2008, the Federal Reserve put into place various lender-of-last-resort programs under section 13(3) of the Federal Reserve Act in order to cushion the strains on financial intermediaries’ balance sheets and thereby target the unusually wide spreads in a variety of credit markets. While classic monetary policy targets a price (for example, the federal funds rate), the liquidity facilities affect balance-sheet quantities. The financial crisis forcefully demonstrated that the collapse of the financial sector’s balance-sheet capacity can have powerful adverse effects on the real economy. We reexamine the distinctions between prices and quantities in monetary policy transmission.
Keywords	JEL Codes: E44, E52, E58, G18, G28
URL	http://www.ijcb.org/journal/ijcb09q4a7.pdf
Remarks	In response to the global financial crisis, central banks have added another policy, "quantitative easing," to the interest rate. A way to incorporate this into central bank policy models, according to the authors, is to express the policy interest rate and the quantitative policy (summarized by the central bank bank balance sheet) as functions of GDP, inflation, and leverage. Repos and commercial paper, which finance the "shadow' banking system, are included in the quantitative policy. The authors conclude that the interaction of leverage constraints of financial intermediaries, short-term interest rates, and financial asset quantities is important and should be taken into account in the conduct of monetary policy.

Record ID	70 [ Page 7 of 7, No. 8 ]
Date	2009-09
Author	Antonella Foglia
Affiliation	Banking and Financial Supervision, Bank of Italy
Title	Stress Testing Credit Risk: A Survey of Authorities' Aproaches
Summary / Abstract	This paper reviews the quantitative methods developed at selected authorities for stress testing credit risk, focusing in particular on the methods used to link macroeconomic drivers of stress with bank-specific measures of credit risk (macro stress test). Authorities with a mandate for financial stability are particularly interested in quantifying the macro-to-micro linkages and have developed specific modeling expertise in this field. Stress testing credit risk is also an essential element of the Basel II framework, and some stress-testing requirements of Basel II are formulated by making explicit reference to the economic cycle. The paper highlights recent developments in macro stress testing and details a number of methodological challenges that may be useful for supervisors in their review process of banks’ models as required by Basel II. It also contributes to the ongoing macroprudential research efforts to integrate macroeconomic oversight and prudential supervision, for early detection of key vulnerabilities and assessment of macro-financial linkages.
Keywords	JEL Codes: E32, E37, G21
URL	http://www.ijcb.org/journal/ijcb09q3a1.pdf

Record ID	69 [ Page 7 of 7, No. 9 ]
Date	2009-06
Author	Michael Ehrmann and Marcel Fratzscher
Affiliation	European Central Bank
Title	Explaining Monetary Policy in Press Conferences
Summary / Abstract	The question of how best to communicate monetary policy decisions remains a highly topical issue among central banks. Focusing on the experience of the European Central Bank, this paper studies how explanations of monetary policy decisions at press conferences are perceived by financial markets. The empirical findings show that ECB press conferences provide substantial additional information to financial markets beyond that contained in the monetary policy decisions, and that the information content is closely linked to the characteristics of the decisions. Press conferences have on average had larger effects on financial markets than the corresponding policy decisions, with lower effects on volatility. Moreover, the Q&A part of the press conference fulfills a clarification role, in particular during periods of large macroeconomic uncertainty.
Keywords	JEL Codes: E52, E58, G14
URL	http://www.ijcb.org/journal/ijcb09q2a2.pdf

Record ID	68 [ Page 7 of 7, No. 10 ]
Date	2010-09
Author	SPR, MCM, FAD, RES
Affiliation	IMF
Title	IMF-FSB EWE--Design and Methodological Toolkit
Summary / Abstract	The severe global impact of the financial crisis in the United States during 2007–08 took almost everyone by surprise. Despite occasional concerns aired during the pre-crisis period, the U.S. financial system was widely perceived to be fundamentally sound and well-regulated. However, starting with the collapse of the U.S. subprime mortgage market in late 2007, and particularly in the aftermath of Lehman’s demise in late 2008, the crisis spread globally. Liquidity dried up, cross-border capital flows reversed abruptly, and world trade dropped sharply. In a truly systemic manner, the effects of a shock in one corner of the U.S. financial sector impaired global economic and financial activity in a lasting way.
Keywords	International financial system \| External sector \| Corporate sector \| Capital markets \| Asset prices \| Fiscal risk \| Financial risk \| Fund role \| Multilateral surveillance \| Risk management
URL	http://www.imf.org/external/np/pp/eng/2010/090110.pdf
Remarks	This very important paper by IMF experts should be of use by the Asean+3, particularly on the implementation of the CMIM and the workings of the AMRO.

Record ID	67 [ Page 7 of 7, No. 11 ]
Date	2004-09
Author	Frank Smets and Raf Wouters
Affiliation	ECB
Title	Forecasting with a Bayesian DSGE Model: An applicationo to the Euro Area
Summary / Abstract	In monetary policy strategies geared towards maintaining price stability conditional and unconditional forecasts of inflation and output play an important role. This paper illustrates how modern sticky-price dynamic stochastic general equilibrium models, estimated using Bayesian techniques, can become an additional useful tool in the forecasting kit of central banks. First, we show that the forecasting performance of such models compares well with atheoretical vector autoregressions. Moreover, we illustrate how the posterior distribution of the model can be used to calculate the complete distribution of the forecast, as well as various inflation risk measures that have been proposed in the literature. Finally, the structural nature of the model allows computing forecasts conditional on a policy path. It also allows examining the structural sources of the forecast errors and their implications for monetary policy. Using those tools, we analyse macroeconomic developments in the euro area since the start of EMU.
Keywords	Forecasting; DSGE models; monetary policy; euro area
URL	http://www.ecb.int/pub/pdf/scpwps/ecbwp389.pdf
Remarks	This is an excellent paper by original thinkers Smets and Wouters, who first applied Bayesian methods to DSGE modeling. Modern sticky-price DSGE models of the type used in this paper and estimated using Bayesian techniques combine a sound, micro-founded structure necessary for policy analysis with a good probabilistic description of the observed data and forecasting performance. In this paper the authors illustrated how such Bayesian DSGE models can become an additional useful tool in the forecasting kit of central banks. First, they show that the forecasting performance of such models compares well with atheoretical vector autoregressions. Moreover, they illustrate how the posterior distribution of the model can be used to calculate the complete distribution of the forecast, as well as various inflation risk measures that have been proposed in the literature. Finally, the structural nature of their model allows computing forecasts conditional on a policy path. It also allows examining the structural sources of the forecast errors and their implications for monetary policy. Using those tools, they briefly analysed and interpreted macroeconomic developments in the euro area since the start of EMU. Their tools can also be used to forecast and interpret macroeconomic developments in the Philippines since 2002.

Record ID	66 [ Page 7 of 7, No. 12 ]
Date	2005-04
Author	Esa Jokivuolle, Juha Kilponen, and Tero Kuusi
Affiliation	Bank of Finland, Monetary Policy and Research Department
Title	GDP at risk in a DSGE model: an application to banking sector stress testing
Summary / Abstract	We suggest a complementary tool for financial stability analysis based on stochastic simulation of a dynamic stochastic general equilibrium model (DSGE)of the macro economy. The paper relates to financial stability research in which financial aggregates crucial to financial stability are modelled as functions of macroeconomic variables. In these models, stress tests for eg banking sector loan losses can be generated by considering adverse scenarios of macro variables. A DSGE model provides a systematic way of generating coherent macro scenarios which can be given a rigorous economic interpretation. The approach is illustrated using a DSGE model of the Finnish economy and a simple model of Finnish banking sector loan losses.
Keywords	DSGE models, financial stability, loan losses, stress testing
URL	http://www.bof.fi/NR/rdonlyres/79A1CBAE-93FE-4C59-876B-680A310C6928/0/0726netti.pdf
Remarks	This empirical paper by the staff of the Finnish central bank is practical and does not involve new conceptual insights compared to the existing literature on macro stress testing. It is useful to complement current macro stress testing methods by making use of modern macroeconomic equilibrium (DSGE) models. For a central bank using a DSGE model in its economic analysis and forecasting, it is natural to utilise it also in financial stability analysis, thereby bringing the two key central bank functions (monetary policy and banking supervision) closer together.

Record ID	65 [ Page 7 of 7, No. 13 ]
Date	2005-04
Author	Marco Del Negro and Frank Schorfheide
Affiliation	Federal Reserve Bank of New York University of Pennsylvania - Department of Economics; Centre for Economic Policy Research (CEPR)
Title	Monetary Policy Analysis with Potentially Misspecified Models
Summary / Abstract	This paper proposes a novel method for conducting policy analysis with potentially misspecified dynamic stochastic general equilibrium (DSGE) models and applies it to a New Keynesian DSGE model along the lines of Christiano, Eichenbaum, and Evans (JPE 2005) and Smets and Wouters (JEEA 2003). Specifically, we are studying the effects of coefficient changes in interest-rate feedback rules on the volatility of output growth, inflation, and nominal rates. The paper illustrates the sensitivity of the results to assumptions on the policy invariance of model misspecifications.
Keywords	Bayesian Analysis, DSGE Models, Model Misspecification
URL	http://www.ecb.int/pub/pdf/scpwps/ecbwp475.pdf
Remarks	A fairly robust policy recommendation emerges from the analysis of this very important empirical paper: the central bank should avoid strong responses to output growth movements and not react weakly to inflation fluctuations.

Record ID	64 [ Page 7 of 7, No. 14 ]
Date	2010-05
Author	Ankita Mishra and Vinod Mishra Vinod Mishra
Affiliation	Monash University
Title	A VAR Model of Monetary Policy and Hypothetical Case of Inflation Targeting in India
Summary / Abstract	The empirical VAR literature on identification and measurement of the impact of monetary policy shocks on the real side of the economy is fairly comprehensive for developed economies but very limited for emerging and transition economies. In this study, we propose an identification scheme, for a developing economy taking India as a case study, which is able to capture the monetary transmission mechanism without giving rise to any empirical anomalies. We use a VAR approach with recursive contemporaneous restrictions and identify monetary policy shocks by modelling the reaction function of the central bank and structure of the economy. The effect of monetary policy shocks on the exchange rate and other macroeconomic variables is consistent with the predictions of a broad set of theoretical models. This set-up is used to build a hypothetical case of inflation targeting where the monetary policy instrument is set after looking at the current values of inflation only. This is in contrast with the „multiple indicator approach‟ currently followed by Reserve Bank of India. This hypothetical scenario of inflation targeting suggests a sharper response of the interest rate (monetary policy instrument) to shocks and strengthening of the exchange rate channel in transmission of interest rate impulses. This study also provides some useful implications on the type of theoretical framework which can be used to model the evolution of monetary policy for a developing economy like India.
Keywords	India, Inflation Targeting, Monetary policy, VAR
URL	http://d.repec.org/n?u=RePEc:mos:moswps:2010-15&r=mac
Remarks	It would be interesting to see results from applying this very simple methodology to the Philippine time series from 2002.

Record ID	63 [ Page 7 of 7, No. 15 ]
Date	2005-07
Author	A Levin, A Onatski, J. C. Williams, N. Williams
Affiliation	Fed Res Board, Columbia U, Fed Res Bank of SF, Princeton U & NBER
Title	Monetary Policy Under Uncertainty in Micro-Founded Macroeconometric Models
Summary / Abstract	We use a micro-founded macroeconometric modeling framework to investigate the design of monetary policy when the central bank faces uncertainty about the true structure of the economy. We apply Bayesian methods to estimate the parameters of the baseline specification using postwar U.S. data and then determine the policy under commitment that maximizes household welfare. We find that the performance of the optimal policy is closely matched by a simple operational rule that focuses solely on stabilizing nominal wage inflation. Furthermore, this simple wage stabilization rule is remarkably robust to uncertainty about the model parameters and to various assumptions regarding the nature and incidence of the innovations. However, the characteristics of optimal policy are very sensitive to the specification of the wage contracting mechanism, thereby highlighting the importance of additional research regarding the structure of labor markets and wage determination
Keywords	Ramsey policy, simple rules, model uncertainty
URL	http://www.frbsf.org/publications/economics/papers/2005/wp05-15bk.pdf
Remarks	The welfare performance of the authors' near optimal simple policy rule of adjusting the policy rate to its lagged value and to nominal wage inflation (note the absence of the output gap, which is a major advantage owing to the difficulties of measuring (unobserved) potential output), is very sensitive to the specification of wage and price determination, suggesting that a hybrid rule involving both wage and price inflation might be more robust across a broader class of models. Adding price inflation to wage inflation renders their approach still advantageous from a practical standpoint (with no output gap). Also, in the case of the Philippines, the labor market is dualistic and wage determination is different across the agricultural (farming) and industrial sectors (labor contracting differs owing to the strength of labor unions in the productive sectors and varying degree of government record in establishing a level playing field between workers and owners of land and capital assets.

Record ID	62 [ Page 7 of 7, No. 16 ]
Date	2003-09
Author	Matt Klaeffling
Affiliation	European Central Bank
Title	Macroeconomic Modelling of Monetary Policy
Summary / Abstract	This paper proposes a new paradigm for the analysis of monetary policy. From an econometric point of view this new approach is just as easy to implement as reduced form analysis, but is robust to the Lucas critique. It requires no explicit prior theory and yet it encompasses all standard DSGE models. After introducing this new paradigm I study US monetary policy and look at the nature and the effect of monetary policy, discuss the transmission mechanism and the policy rule implied by the data, and perform counterfactual policy analysis. Source: ECB Working Paper Series No. 257
Keywords	DSGE Models, VAR Models, Monetary Policy, Rational Expectations,Lucas Critique, Empirical Time Series Modelling, Applied Macroeconomics
URL	http://www.ecb.int/pub/pdf/scpwps/ecbwp257.pdf
Remarks	This is an intriguing paper by an ECB staff member. He begins his paper by criticizing both DSGE and VAR modelling frameworks. He says that while VAR models are subject to the Lucas critique, DSGE models employ heroic assumptions about the structure of the economy ("Absent general agreement as to how relevant the first principles of neoclassical microeconomics are for a world characterized by incomplete markets, asymmetric information and heterogeneous agents, one may ask what informative value micro-structural models have for empirical macroeconomics."). He then proposes and tests (on U.S. data) a new semi-structural paradigm that nests DSGE and VAR models as restricted sub-cases. His proposal allows full empirical and counter-factual analysis in a simple estimated macro model, with simple instrumental variables (IV) estimation (GMM can also be used).

Record ID	61 [ Page 7 of 7, No. 17 ]
Date	2005-03-15
Author	Rachel Lomax
Affiliation	Bank of England
Title	Inflation targeting in practice: models, forecasts and hunches
Summary / Abstract	In this speech, Rachel Lomax, Deputy Governor responsible for monetary policy, reviews the role that model-based forecasts play in the monetary policy process, with particular reference to the Bank’s new quarterly model and continuing research into other statistical approaches. The Bank’s models provide a consistent framework for considering alternative scenarios and risks but judgement always plays a large role in constructing forecasts. It is hard to say precisely how important forecasts are in driving policy decisions, but there is some evidence that the rethink of key issues during the forecast round has been a source of policy ‘surprises’. Forecasts also play a central part in communicating the MPC’s thinking to the outside world. But forecasts are highly fallible. So the MPC’s forecast-centred approach to inflation targeting has gone hand in hand with a determined effort to illustrate the wide range of uncertainties around its central projections.
URL	http://www.bankofengland.co.uk/publications/speeches/2005/speech242.pdf
Remarks	Given to the 59th International Atlantic Economic Conference in London on 12 March 2005. This speech can be found on the website of Bank of England.

Record ID	60 [ Page 7 of 7, No. 18 ]
Date	2007-04
Author	Malin Adolfson, Michael K. Andersson, Jesper Lindé, Mattias Villani, and Anders Vredin
Affiliation	Sveriges Riksbank
Title	Modern Forecasting Models in Action: Improving Macroeconomic Analyses at Central Banks
Summary / Abstract	There are many indications that formal methods are not used to their full potential by central banks today. In this paper we demonstrate how BVAR and DSGE models can be used to shed light on questions that policy makers deal with in practice using data from Sweden. We compare the forecast performance of BVAR and DSGE models with the Riksbank's official, more subjective forecasts, both in terms of the actual forecasts and root mean square errors. We also discuss how to combine model- and judgment-based forecasts, and show that the combined forecast performs well out-of-sample. In addition, we show the advantages of structural analysis and use the models for interpreting the recent development of the inflation rate using historical decompositions. Lastly, we discuss the monetary transmission mechanism in the formal models, using impulse response functions and conditional forecasts.
Keywords	Bayesian inference, Combined forecasts, DSGE models, Forecasting, Monetary policy, Subjective forecasting, Vector autoregressions
URL	http://www.riksbank.com/upload/WorkingPapers/WP_188Revised.pdf

Record ID	59 [ Page 7 of 7, No. 19 ]
Date	2007
Author	Jordi Gali and Mark Gertler
Affiliation	Centre de Recerca en Economia Internacional (CREI) and New York University
Title	Macroeconomic Modeling for Monetary Policy Evaluation
Summary / Abstract	Source: Journal of Economic Perspectives—Volume 21, Number 4—Fall 2007—Pages 25–45

Record ID	58 [ Page 7 of 7, No. 20 ]
Date	2010-09
Author	Strategy, Policy, and Review and Legal Departments
Affiliation	International Monetary Fund
Title	IMF Policy Paper: Review of the Fund's Mandate - Follow-Up on Modernizing Surveillance
Summary / Abstract	The IMF Executive Board has been considering reforms to strengthen the Fund's mandate to better equip the institution to safeguard global stability. Executive Directors have supported a range of reforms to modernize the Fund's surveillance mandate and modalities. This paper focuses on selected aspects of these reforms where further work was called for, including on a possible multilateral surveillance decision and proposals to enhance the traction and flexibility of bilateral surveillance
Keywords	Fund role; Multilateral Surveillance; World Economic Outlook; Global Financial Stability report
URL	http://www.imf.org/external/pp/longres.aspx?id=4476
Remarks	The IMF Executive Board has been considering reforms to strengthen the Fund’s mandate to better equip the institution to safeguard global stability. Executive Directors have supported a range of reforms to modernize the Fund’s surveillance mandate and modalities. This paper focuses on selected aspects of these reforms where further work was called for, including on a possible multilateral surveillance decision and proposals to enhance the traction and flexibility of bilateral surveillance. Plans for specific papers on other aspects of the Fund’s surveillance mandate are summarized. To buttress multilateral surveillance, this paper discusses: - experimentation with “spillover reports” over the next year or so; - options to enhance the effectiveness of the WEO and GFSR and the synergy between them and other multilateral surveillance activities; and - what a Multilateral Surveillance Decision might entail (in light of concerns that it may be an unduly drawn out and complicated endeavor). To enhance bilateral surveillance, this paper discusses: - increasing the traction of surveillance, with more engagement with policymakers; and - enhancing the flexibility of the process through greater use of lapse-of-time procedures and modernized rules for consultation cycles.

Record ID	57 [ Page 7 of 7, No. 21 ]
Date	2010-08
Author	Cristina Checherita Philipp Rother
Affiliation	European Central Bank
Title	The impact of high and growing government debt on economic growth: an empirical investigation for the euro area
Summary / Abstract	This paper investigates the average impact of government debt on per-capita GDP growth in twelve euro area countries over a period of about 40 years starting in 1970. It finds a non-linear impact of debt on growth with a turning point—beyond which the government debt-to-GDP ratio has a deleterious impact on long-term growth—at about 90-100% of GDP. Confidence intervals for the debt turning point suggest that the negative growth effect of high debt may start already from levels of around 70-80% of GDP, which calls for even more prudent indebtedness policies. At the same time, there is evidence that the annual change of the public debt ratio and the budget deficit-to-GDP ratio are negatively and linearly associated with per-capita GDP growth. The channels through which government debt (level or change) is found to have an impact on the economic growth rate are: (i) private saving; (ii) public investment; (iii) total factor productivity (TFP) and (iv) sovereign long-term nominal and real interest rates. From a policy perspective, the results provide additional arguments for debt reduction to support longer-term economic growth prospects.
Keywords	Public debt, economic growth, fiscal policy, sovereign long-term interest rates
URL	http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101237&r=fdg
Remarks	For the euro area, the ECB authors find that the negative growth effects of total (domestic and external) government debt begin from about 70-80 percent of GDP. Given that the domestic debt component accounts for around 30 percent of GDP on average, the threshold for the external debt component is in the range of 40-50 percent of GDP. In the case of the emerging market economies, I estimated the optimal (Ramsey) gross foreign debt (government plus private) in the range of 37-52 percent of GDP (Ch. 3, Macroeconomic Policies for Stable Growth (World Scientific, 2008)). The Philippine external debt ratio has been falling from 62.7 percent in 2004 to 38.8 percent of GDP in 2008. At the end of 2008, the public external debt ratio stood at 35.4 percent of GDP. The IMF projects this ratio to decline to 32.3 percent of GDP in 2011 and further to 29.3 percent of GDP by 2014. Adding the private foreign debt component to these projections would place the total Philippine foreign debt ratio in the lower limit of the optimal range.

Record ID	56 [ Page 7 of 7, No. 22 ]
Date	2010-09
Author	Berg, Andrew; Papageorgiou, Chris; Pattillo, Catherine A.; Spatafora, Nicola
Affiliation	International Monetary Fund
Title	The End of an Era? The Medium- and Long-term Effects of the Global Crisis on Growth in Low-Income Countries
Summary / Abstract	This paper investigates the medium- and long-term growth effects of the global financial crises on Low-Income Countries (LICs). Using several methodological approaches, including impulse response function analysis, growth spells techniques and panel regressions, we show that external demand (ED) shocks are not historically associated with sharp declines in output growth. Given existing evidence that LICs were primarily impacted by such a shock in the global financial crisis, our analysis provides some optimism on the chances that LICs will avoid a protracted period of slow growth. However, we also show that there seem to be persistent output losses associated with ED shocks in the medium-run. In terms of policy implications, our analysis provides evidence that countries with lower deficits, lower debt, more flexible exchange rate regimes, and a higher stock of international reserves are more likely to dampen the effects of an ED shock on growth.
Keywords	Global financial crisis, external shocks, low-income countries, medium- and long-term growth, impulse response functions, growth spells, panel growth regressions
URL	http://www.imf.org/external/pubs/cat/longres.cfm?sk=24190.0
Remarks	In this empirical research paper, the authors split the total sample into LICs (Low Income Countries) and NLICs (Non-Low Income Countries). The latter subgroup includes the Philippines. Their main result is that countries with lower budget deficits, lower debt, more flexible exchange rate regimes, and higher international reserves are more likely to absorb the effects of an external demand shock on growth.

Record ID	55 [ Page 7 of 7, No. 23 ]
Date	2010-07
Author	Levine, Paul
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 papers 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. In particular by treating DSGE models estimated by Bayesian-Maximum-Likelihood methods I argue that they can be considered as probability models in the sense described by Sims (2007) and be used for risk-assessment and policy design. This is true for any one model, but with a range of models on offer it is possible also to design interest rate rules that are simple and robust across the rival models and across the distribution of parameter estimates for each of these rivals as in Levine et al. (2008). After making models better in a number of important dimensions, a possible road ahead is to consider rival models as being distinguished by the model of expectations. This would avoid becoming `a prisoner of a single system' at least with respect to expectations formation where, as I argue, there is relatively less consensus on the appropriate modelling strategy. Third, current inflation targeting rule perform well in the sense they lower the welfare costs of uctuations across all model parameter combinations and model variants.
Keywords	Structured uncertainty, DSGE models, Robustness, Bayesian estimation, Interest-rate rules
URL	http://d.repec.org/n?u=RePEc:npf:wpaper:10/72&r=mon
Remarks	Paul Levin, an acknowledged expert on this topic, surveys the evolution of macroeconomic modeling in the last three decades or so, culminating in the DSGE framework now used in many central banks, with Bayesian methods as the favorite estimating tools. An important result of his analysis is the general support for the proposition that robustness in the face of model uncertainty calls for a more cautious policy; that is a lower responses to current or expected inflation. Another is that forward-looking targeting rules perform badly in the sense they raise the welfare costs of fluctuations compared with optimal simple rules that only respond to current inflation. The source of this result is the well-known problem of indeterminacy--forward-looking rules certainly pin down expectations of future inflation, but fail to uniquely anchor the current price level resulting in an infinite number of equilibrium paths that will return the economy to its steady-state. An excellent survey of the state-of-the art.

Record ID	54 [ Page 7 of 7, No. 24 ]
Date	2010-06
Author	International Monetary Fund Staff
Affiliation	International Monetary Fund
Title	The Fund’s Mandate - The Future Financing Role - Reform Proposals
Summary / Abstract	The global crisis has underscored the need for effective global financial safety nets to protect countries with sound policy frameworks from adverse outcomes. Complementing the traditional crisis resolution role of the IMF, which has been instrumental during the recent crisis and is expected to remain dominant going forward, further strengthening instruments to prevent crises and mitigate contagion in systemic events would contribute to the IMF’s mandate to secure global stability. This paper proposes specific reforms of crisis prevention instruments, and separately presents further considerations for strengthening the IMF’s toolkit for dealing with systemic crises. The proposals, which have benefited from feedback from policymakers and other stakeholders, build on last year’s major overhaul of the IMF lending toolkit and the reform options considered earlier this year by the IMF Executive Board in the context of a broader review of the institution’s mandate.
Keywords	Fund role; Concessional aid; Flexible Credit Line; Precautionary Credit Line; Fund general resources; Access policy; Crisis prevention; Executive Board decisions
URL	http://www.imf.org/external/pp/longres.aspx?id=4471
Remarks	The discussion in this policy paper is relevant to the newly established AMRO of the ASEAN+3. Even a country with fundamentally sound economic policies and balance sheets, but with a high degree of integration into international capital markets, still faces a risk that capital account pressures could transform into a self-fulfilling run on its currency. Hence, there is a role for insurance provided by foreign exchange liquidity. Many ASEAN+3 members have self-insured by building up large international reserves positions, or have sought contingent lines of credit, including the CMIM.

Record ID	53 [ Page 7 of 7, No. 25 ]
Date	2010-09
Author	Kumhof, Michael ; Laxton, Douglas ; Leigh, Daniel
Affiliation	International Monetary Fund
Title	To Starve or not to Starve the Beast?
Summary / Abstract	For thirty years prominent voices have advocated a policy of starving the beast cutting taxes to force government spending cuts. This paper analyzes the macroeconomic and welfare consequences of this policy using a two-country general equilibrium model. Under several strong assumptions the policy, if fully implemented, produces domestic output and welfare gains accompanied by losses elsewhere. But negative effects can easily arise in the presence of longer policy implementation lags, utility-enhancing government spending, and productive government capital. Overall, the analysis finds no support for the idea that starving the beast is a foolproof way towards higher output and welfare.
Keywords	Starve-the-beast, tax cuts, spending cuts, budget deficits, government debt, non- Ricardian behavior, welfare analysis
URL	http://www.imf.org/external/pubs/cat/longres.cfm?sk=24178.0
Remarks	This is an objective, optimizing analysis of the currently popular, political argument for cutting taxes to force spending cuts. The authors conclude that under plausible assumptions, this policy could lead to negative output and welfare. Authors use a two-country model of the U.S. and the rest-of-the world (ROW). The likely negative output and welfare losses apply to both the U.S. and ROW.

Record ID	52 [ Page 7 of 7, No. 26 ]
Date	2010-08-16
Author	Adams, Charles
Affiliation	Asian Development Bank Institute
Title	The Role of the State in Managing and Forestalling Systemic Financial Crises: Some Issues and Perspectives
Summary / Abstract	This paper reviews recent state interventions in financial crises and draws lessons for crisis management. A number of areas are identified where crisis management could be strengthened, including with regard to the tools and instruments used to involve the private sector in crisis resolution (with a view to reducing the recent enhanced role of official bailouts and the associated moral hazard), to allow for the orderly resolution of systemically important financial firms (to make these firms "safe to fail"), and with regard to achieving better integration with ex ante macroprudential surveillance. The paper proposes the establishment of high level systemic risk councils (SRCs) in each country with responsibility for overseeing systemic risk in both tranquil times and crisis periods and coordinating the activities of key government ministries, agencies, and the central bank.
Keywords	global financial crisis; state intervention; macroprudential surveiilance; crisis resolution; prevention
URL	http://d.repec.org/n?u=RePEc:ris:adbiwp:0242&r=ban
Remarks	The author's proposed SRC's functions are included in the comprehensive U.S. Financial Stability Oversight Council (FSOC), whose powers are wider. While the suggested SRC is silent on its composition, the American FSOC includes as its Chairman the U.S. Treasury secretary and the chairman of the U.S. Federal Reserve, along with eight other members, including the Comptroller of the Currency and chairmen of FDIC, SEC and CFTC.

Record ID	51 [ Page 7 of 7, No. 27 ]
Date	2010-08
Author	ElGanainy, Asmaa A ; Weber, Anke
Affiliation	International Monetary Fund
Title	Estimates of the Output Gap in Armenia with Applications to Monetary and Fiscal Policy
Summary / Abstract	This paper employs several econometric techniques to estimate the Armenian output gap. The findings indicate that the output gap is significantly positive in 2007 and 2008 and decreased dramatically in 2009. The paper uses these results to estimate a New Keynesian Phillips curve for Armenia, suggesting a significant role of the output gap and inflation expectations in determining current inflation. Finally, the underlying fiscal stance over the period 2000-09 is assessed by estimating the cyclically-adjusted fiscal balance. Most of Armenia's fiscal deficit is found to be structural. Fiscal policy, while providing counter-cyclical support in 2009, has been largely pro-cyclical in the past.
Keywords	Armenia, potential output, Bayesian Analysis, New Keynesian Phillips Curve, Cyclically-Adjusted Balance, Fiscal Stance, Fiscal Impulse, Automatic Stabilizers
URL	http://www.imf.org/external/pubs/cat/longres.cfm?sk=24166.0
Remarks	Since Armenia, like the Philippines, is a small, open economy, the modern econometric methods used in this paper may be worth trying using Philippine data.

Record ID	50 [ Page 7 of 7, No. 28 ]
Date	2010-08
Author	Rahul Anand and Eswar Prasad
Affiliation	International Monetary Fund and Cornell University
Title	Optimal Price Indices for Targeting Inflation under Incomplete Markets
Summary / Abstract	In models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. In this paper, we develop a two-sector two-good closed economy new Keynesian model to study the optimal choice of price index in markets with financial frictions. Financial frictions that limit credit-constrained consumers’ access to financial markets make demand insensitive to interest rate fluctuations. The demand of credit-constrained consumers is determined by their real wage, which depends on prices in the flexible price sector. Thus, prices in the flexible price sector influence aggregate demand and, for monetary policy to have its desired effect, the central bank has to stabilize price movements in the flexible price sector. Also, in the presence of financial frictions, stabilizing core inflation is no longer equivalent to stabilizing output fluctuations. Our analysis suggests that in the presence of financial frictions a welfare-maximizing central bank should adopt flexible headline inflation targeting – a target based on headline rather than core inflation, and with some weight on the output gap. We discuss why these results are particularly relevant for emerging markets, where the share of food expenditures in total consumption expenditures is high and a large proportion of consumers are credit-constrained.
Keywords	inflation targeting, monetary policy framework, core inflation, headline inflation, financial frictions, liquidity constraints
URL	http://d.repec.org/n?u=RePEc:iza:izadps:dp5137&r=mac
Remarks	This provides an analytical rationale for BSP's use of headline (not core) inflation in the IT framework.

Record ID	49 [ Page 7 of 7, No. 29 ]
Date	2010-07
Author	Pietro Catte, Pietro Cova, Patrizio Pagano and Ignazio Visco
Affiliation	Bank of Italy
Title	The role of macroeconomic policies in the global crisis
Summary / Abstract	This paper argues that the lack of timely and decisive policy action to correct domestic and external imbalances contributed crucially to the build-up of financial excesses that led to the financial crisis and the Great Recession. We focus on 2002-07 and perform a number of counterfactual simulations to investigate two central elements of the story, namely: (a) an over-expansionary US monetary policy and the absence of effective macro-prudential supervision, which permitted a prolonged expansion of debt-financed consumer spending; (b) the decision of China and other emerging countries to pursue an export-led growth strategy supported by pegging their currencies to the US dollar, resulting in a huge build-up of their official reserves, in conjunction with sluggish domestic demand in surplus advanced economies characterized by low potential output growth. The results of the simulations lend support to the view that if substantial, globally coordinated demand rebalancing had been undertaken in a timely manner, the macroeconomic and financial imbalances would not have accumulated to the extent that they did and the financial turmoil might have had less drastic global consequences.
Keywords	global imbalances, financial crisis, monetary policy, macroprudential regulation, structural reforms
URL	http://d.repec.org/n?u=RePEc:bdi:opques:qef_69_10&r=fdg
Remarks	This paper provides a background support for O. Blanchard's call for global coordination of macroeconomic and financial policies to prevent another severe global crisis from happening again in the future.

Record ID	12 [ Page 7 of 7, No. 30 ]
Date	2010-08-01
Author	Michael Patra and Muneesh Kapur
Affiliation	IMF
Title	A Monetary Policy Model Without Money for India
Summary / Abstract	A New Keynesian model estimated for India yields valuable insights. Aggregate demand reacts to interest rate changes with a lag of at least three quarters, with inflation taking seven quarters to respond. Inflation is inertial and persistent when it sets in, irrespective of the source. Exchange rate pass-through to domestic inflation is low. Inflation turns out to be the dominant focus of monetary policy, accompanied by a strong commitment to the stabilization of output. Recent policy actions have raised the effective policy rate, but the estimated neutral policy rate suggests some further tightening to normalize the policy stance. Source: IMF Working Paper No. 10/183
URL	http://www.imf.org/external/pubs/cat/longres.cfm?sk=24128.0
Remarks	There is a web link below where you can find a working paper authored by two economists in the Office of the ED for India, authorized by Arvind Virmani. Very informative and nicely written.

Record ID	13 [ Page 7 of 7, No. 31 ]
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 7 of 7, No. 32 ]
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 7 of 7, No. 33 ]
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 7 of 7, No. 34 ]
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 7 of 7, No. 35 ]
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 7 of 7, No. 36 ]
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 7 of 7, No. 37 ]
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 7 of 7, No. 38 ]
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 7 of 7, No. 39 ]
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 7 of 7, No. 40 ]
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.

Record ID	5 [ Page 7 of 7, No. 41 ]
Date	2010-06-01
Author	Andrew Berg, Rafael Portillo and D. Filiz Unsal
Affiliation	IMF
Title	On the Optimal Adherence to Money Targets in a New-Keynesian Framework: An Application to Low-Income Countries
Summary / Abstract	Many low-income countries continue to describe their monetary policy framework in terms of targets on monetary aggregates. This contrasts with most modern discussions of monetary policy, and with most practice. We extend the new-Keynesian model to provide a role for �M� in the conduct of monetary policy, and examine the conditions under which some adherence to money targets is optimal. In the spirit of Poole (1970), this role is based on the incompleteness of information available to the central bank, a pervasive issues in these countries. Ex-ante announcements/forecasts for money growth are consistent with a Taylor rule for the relevant short-term interest rate. Ex-post, the policy maker must choose his relative adherence to interest rate and money growth targets. Drawing on the method in Svensson and Woodford (2004), we show that the optimal adherence to ex-ante targets is equivalent to a signal extraction problem where the central bank uses the money market information to update its estimate of the state of the economy. We estimate the model, using Bayesian methods, for Tanzania, Uganda (both de jure money targeters), and Ghana (a de jure inflation targeter), and compare the de facto adherence to targets with the optimal use of money market information in each country. Source: IMF Working Paper No. 10/134
URL	http://www.imf.org/external/pubs/cat/longres.cfm?sk=23928.0
Remarks	This useful empirical paper by the IMF Res Dept Andrew Berg et al can be applied to the Philippines. Since the economy is subject to shocks, the ex ante equivalence between the money and interest rate targets breaks down (Poole 1970). Their work is also closely related to more recent work, starting with Svensson and Woodford (2003, 2004), on the optimal use of indicator variables in forward-looking models.

Record ID	1 [ Page 7 of 7, No. 42 ]
Date	2010-06
Author	Michael Woodford
Affiliation	Columbia University
Title	Optimal Monetary Stabilization Policy
Summary / Abstract	This chapter reviews the theory of optimal monetary stabilization policy in New Keynesian models, with particular emphasis on developments since the treatment of this topic in Woodford (2003). The primary emphasis of the chapter is on methods of analysis that are useful in this area, rather than on final conclusions about the ideal conduct of policy (that are obviously model-dependent, and hence dependent on the stand that one might take on many issues that remain controversial), and on general themes that have been found to be important under a range of possible model specifications. With regard to methodology, some of the central themes of this review will be the application of the method of Ramsey policy analysis to the problem of the optimal conduct of monetary policy, and the connection that can be established between utility maximization and linear-quadratic policy problems of the sort often considered in the central banking literature. With regard to the structure of a desirable decision framework for monetary policy deliberations, some of the central themes will be the importance of commitment for a superior stabilization outcome, and more generally, the importance of advance signals about the future conduct of policy; the advantages of history-dependent policies over purely forward-looking approaches; and the usefulness of a target criterion as a way of characterizing a central bank's policy commitment. URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:16095&r=mon - http://www.nber.org/papers/w16095.pdf - http://www.econ.columbia.edu/RePEc/pdf/DP0910-18.pdf
URL	http://d.repec.org/n?u=RePEc:nbr:nberwo:16095&r=mon

Record ID	32 [ Page 7 of 7, No. 43 ]
Date	2010-05-28
Author	IMF
Title	Colombia: Arrangement Under the Flexible Credit Line
Summary / Abstract	Colombia: Arrangement Under the Flexible Credit Line and Cancellation of the Current Arrangement - Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the authorities of Colombia URL: http://www.imf.org/external/pubs/cat/longres.cfm?sk=23919.0
URL	http://www.imf.org/external/pubs/cat/longres.cfm?sk=23919.0
Remarks	The paper is all about Colombia's precautionary request under the FCL. Note that the strengths of the three F's (Fiscal Framework, Flexible Exchange Rate, Financial Sector Oversight) and of IT are deemed sufficient. Colombia is noteworthy as far as the Philippines is concerned, because of Colombia's strong inflation targeting monetary policy framework, introduced at about the same time as did the Philippines. I think that the area that needs significant improvement for the Philippines is the Fiscal Framework. Don't you agree? With BSP's strong reserve position, I did not mean to imply that the Philippines needs an FCL, but note that Colombia's reserves (aided by workers' remittances just like in the Philippines) are also at a comfortable level. The Colombian authorities made the request for the FCL in case the external environment turns worse than expected.

Record ID	22 [ Page 7 of 7, No. 44 ]
Date	2010-05-27
Author	Kenji Fujita, Karl Habermeier, Erlend Nier, Scott Roger, Noel Sacasa, Mark Stone, and Jan Vlcek
Affiliation	IMF-MCMD
Title	Central Banking Lessons from the Crisis
Summary / Abstract	The crisis brought the financial system to the verge of systemic collapse and raised the prospect of depression and deflation. Central banks helped defuse these threats, including through exceptional measures. Considerable efforts are now under way to draw policy lessons from the crisis. For central banks, the crisis seems to provide three important lessons for policy frameworks-mainly concerning systemic financial stability. Source: IMF Policy Paper
URL	http://www.imf.org/external/pp/longres.aspx?id=4461

Record ID	30 [ Page 7 of 7, No. 45 ]
Date	2010-05-27
Author	Krisztina Molnár and Sergio Santoro
Affiliation	Norges Bank and Bank of Italy
Title	Optimal Monetary Policy When Agents Are Learning
Summary / Abstract	We derive the optimal monetary policy in a sticky price model when private agents follow adaptive learning. We show that this slight departure from rationality has important implications for policy design. The central bank faces a new intertemporal trade-off, not present under rational expectations: it is optimal to forego stabilizing the economy in the present in order to facilitate private sector learning and thus ease the future intratemporal inflation-output gap trade-offs. The policy recommendation is robust: the welfare loss entailed by the optimal policy under learning if the private sector actually has rational expectations is much smaller than if the central bank mistakenly assumes rational expectations when in fact agents are learning. URL:http://d.repec.org/n?u=RePEc:bno:worpap:2010_08&r=mac
Keywords	optimal monetary policy, learning, rational expectations
URL	http://www.norges-bank.no/templates/article____76978.aspx
Remarks	This interesting paper concludes that, if the central bank does not know the exact nature of private inflation expectations (whether rational or adaptive), monetary policy focused on lowering and stabilizing inflation, as opposed to stabilizing employment/economic activity, is the optimal monetary policy.

Record ID	33 [ Page 7 of 7, No. 46 ]
Date	2010-05-25
Author	Karl Aiginger
Title	The Great Recession versus the Great Depression: Stylized Facts on Siblings That Were Given Different Foster Parents
Summary / Abstract	This paper compares the depth of the recent crisis and the Great Depression. We use a new data set to compare the drop in activity in the industrialized countries for seven activity indicators. This is done under the assumption that the recent crisis leveled off in mid-2009 for production and will do so for unemployment in 2010. Our data indicate that the recent crisis indeed had the potential to be another Great Depression, as shown by the speed and simultaneity of the decline in the first nine months. However, if we assume that a large second dip can be avoided, the drop in all indicators will have been smaller than during the Great Depression. This holds true specifically for GDP, employment and prices, and least for manufacturing output. The difference in the depth in the crises concurs with differences in policy reaction. This time monetary policy and fiscal policy were applied courageously, speedily and partly internationally coordinated.During the Great Depression for several years fiscal policy tried to stabilize budgets instead of aggregate demand, and either monetary policy was not applied or was rather ineffective insofar as deflation turned lower nominal interest rates into higher real rates. Only future research will be able to prove the exact impact of economic policy, but the current tentative conclusion is that economic policy prevented the recent crisis from developing into a second Great Depression. This is also a partial vindication for economists. The majority of them might not have been able to predict the crisis, but the science did learn its lesson from the Great Depression and was able to give decent policy advice to at least limit thedepth of the recent crisis.
URL	http://www.economics-ejournal.org/economics/journalarticles/2010-18

Record ID	3 [ Page 7 of 7, No. 47 ]
Date	2010-05
Author	Vasco Curdia and Michael Woodford
Affiliation	Federal Reserve Bank of New York and Columbia University - Department of Economics
Title	Conventional and Unconventional Monetary Policy
Summary / Abstract	We extend a standard New Keynesian model to incorporate heterogeneity in spending opportunities and two sources of (potentially time-varying) credit spreads, and to allow a role for the central bank's balance sheet in equilibrium determination. We use the model to investigate the implications of imperfect financial intermediation for familiar monetary policy prescriptions, and to consider additional dimensions of central-bank policy \| variations in the size and composition of the central bank's balance sheet, and payment of interest on reserves, alongside the traditional question of the proper choice of an operating target for an overnight policy rate. We also give particular attention to the special problems that arise when the zero lower bound for the policy rate is reached. We show that it is possible to provide criteria for the choice of policy along each of these possible dimensions, within a single unified framework, and to provide policy prescriptions that apply equally when financial markets work efficiently and when they are subject to substantial disruptions, and equally when the zero bound is reached and when it is not a concern. URL:http://d.repec.org/n?u=RePEc:clu:wpaper:0910-17&r=mac
URL	http://d.repec.org/n?u=RePEc:clu:wpaper:0910-17&r=mac
Remarks	- http://www.econ.columbia.edu/RePEc/pdf/DP0910-17.pdf

Record ID	31 [ Page 7 of 7, No. 48 ]
Date	2010-05
Author	Sandra Gomes, Pascal Jacquinot and Massimiliano Pisani
Affiliation	Bank of Portugal, ECB, Bank of Italy
Title	The EAGLE-- A Model for Policy Analysis of Macroeconomic Interdependence in the Euro Area
Summary / Abstract	Building on the New Area Wide Model, we develop a 4-region macroeconomic model of the euro area and the world economy. The model (EAGLE, Euro Area and Global Economy model) is microfounded and designed for conducting quantitative policy analysis of macroeconomic interdependence across regions belonging to the euro area and between euro area regions and the world economy. Simulation analysis shows the transmission mechanism of region-specific or common shocks, originating in the euro area and abroad. Source: Working Paper Series No. 1195 / May 2010
URL	www.ecb.int/pub/pdf/scpwps/ecbwp1195.pdf

Record ID	35 [ Page 7 of 7, No. 49 ]
Date	2010-05
Author	Laura Jaramillo
Affiliation	IMF
Title	Determinants of Investment Grade Status in Emerging Markets
Summary / Abstract	"The paper finds that investment grade ratings by the three major credit agencies can be explained by a small number of variables. The panel random effects framework identifies a set of five core variables that are relevant for the determination of investment grade status, in particular external public debt, domestic public debt, political risk, exports, and financial depth. Overall, the specification correctly predicts 86 percent of investment grade status of all observations, and two thirds of the upgrades and downgrades from and to investment grade. The findings suggest that efforts by emerging markets to increase the likelihood of an upgrade to investment grade should focus on a faster pace of public debt reduction, in particular external public debt. While efforts to improve on all fronts would be desirable, progress on trade, financial depth and political risk is likely to be gradual and not directly linked with macroeconomic policies. In contrast, a strong process of fiscal consolidation could result in a steady reduction in debt levels. Furthermore, given the larger weight assigned by rating agencies to external debt over domestic debt in their assessments, a sharper decline in external debt is likely to have greater impact on increasing the near-term probability of achieving investment grade status." Source: IMF Working Paper No. 10/117
URL	http://www.imf.org/external/pubs/ft/wp/2010/wp10117.pdf

Record ID	36 [ Page 7 of 7, No. 50 ]
Date	2010-05
Author	Hiromi Yamaoka and Murtaza Syed
Affiliation	IMF
Title	Managing the Exit: Lessons from Japan’s Reversal of Unconventional Monetary Policy
Summary / Abstract	In responding to the global crisis, central banks in several advanced economies ventured beyond traditional monetary policy. A variety of unorthodox measures, including purchases of public and private assets, have significantly enlarged their balance sheets. As recoveries take hold, focus will increasingly shift from countering the Great Recession to orchestrating an exit and returning to a more normal monetary framework. Five years ago, as its economy recovered from a severe financial crisis, Japan attempted just such an exit. This note revisits the Bank of Japan’s experience and draws potential lessons for managing an orderly exit today, with a focus on technical aspects, practicalities, and communication strategies. While the nature of the assets acquired during the present crisis could pose additional complications, parts of Japan’s arsenal—communication, flexibility, a sufficient set of policy tools and a strategy for using them, safeguards against potential losses, the revival of risk appetite through decisive restructuring of balance sheets, and refinements to the monetary framework upon exit—also could be important this time around. Source: IMF Working Paper No. 10/114
URL	http://www.imf.org/external/pubs/ft/wp/2010/wp10114.pdf

Record ID	37 [ Page 7 of 7, No. 51 ]
Date	2010-05
Author	Charles Freedman and Inci Ötker-Robe
Title	Important Elements for Inflation Targeting for Emerging Economies
Summary / Abstract	This is the fifth chapter of a forthcoming monograph entitled "On Implementing Full-Fledged Inflation-Targeting Regimes: Saying What You Do and Doing What You Say." It examines whether certain conditions have to be met before emerging economies can adopt an inflation-targeting regime and provides some empirical evidence on the matter. The issues analyzed are the priority of inflation targeting over other goals, the absence of fiscal dominance, central bank independence, the degree of control over the policy interest rate, a sound methodology for forecasting, and the soundness of financial institutions and markets, and resilience to changes in exchange rates and interest rates. Source: IMF Wokring Paper No. 10/113
URL	http://www.imf.org/external/pubs/ft/wp/2010/wp10113.pdf
Remarks	This paper represents the fifth chapter of a manuscript that is being prepared by Charles Freedman, Douglas Laxton and Inci Ötker-Robe On Developing a Full-Fledged Inflation Targeting Regime: Doing What You Say and Saying What you Do.

Record ID	38 [ Page 7 of 7, No. 52 ]
Date	2010-04
Author	Ansgar Belke
Affiliation	University of Duisburg-Essen, DIW Berlin and IZA Bonn
Title	How Much Fiscal Backing Must the ECB Have? The Euro Area Is Not the Philippines
Summary / Abstract	The ECB has accepted increasing amounts of rubbish collateral since the crisis started leading to exposure to serious private sector credit risk (i.e. default risk) on its collateralised lending and reverse operations ("repo"). This has led some commentators to argue that the ECB needs "fiscal back-up" to cover any potential losses to be able to continue pursuing price stability. This Brief argues that fiscal backing is not necessary for the ECB for three reasons. Firstly, the ECB balance sheet risk is small compared to the FED and BoE as it neither increased its quasi-fiscal operations as much as the Fed or the BoE nor did it engage to a very large extent in outright bond purchases during the financial crisis. Secondly, the ECB's specific accounting principles of repo operations provide for more clarity and earlier recognition of losses. Thirdly, the ECB can draw on substantial reserves of the euro area national banks.
Keywords	Central bank independence, central bank capital, counterparty risk, repurchase agreements, collateral, fiscal backing, liquidity, haircuts
Remarks	This is a briefing paper prepared for presentation at the Committee on Economic and Monetary Affairs of the European Parliament for the quarterly dialogue with the President of the European Central Bank, Brussels, March 2010. I find the title arrogant and insulting. The author's main thesis--that the ECB is immune from fiscal dominance--is not even true, in light of the recent crisis in Greece and the further potential threats to the euro posed by fiscal problems in Spain and Portugal.

Record ID	41 [ Page 7 of 7, No. 53 ]
Date	2010-04
Author	Jorge A. Chan-Lau
Affiliation	IMF
Title	The Global Financial Crisis and its Impact on the Chilean Banking System
Summary / Abstract	This paper explores how the global turmoil affected the risk of banks operating in Chile, and provides evidence that could help strengthen work on vulnerability indicators and off-site supervision. The analysis is based on the study of default risk codependence, or CoRisk, between Chilean banks and global financial institutions. The results suggest that the impact of the global financial crisis was limited, inducing at most a one-rating downgrade to banks operating in Chile. The paper concludes by assessing government measures aimed at reducing systemic risk in the domestic banking sector and the recommendations to allocate SWF assets to domestic banks. Source: IMF Working Paper No. 10/108
URL	http://www.imf.org/external/pubs/ft/wp/2010/wp10108.pdf
Remarks	Continuing on new methods of assessing banking risk, This is another paper by Jorge Chan Lau of the IMF as addition to your inventory of useful tools.

Record ID	42 [ Page 7 of 7, No. 54 ]
Date	2010-04
Author	Jorge A. Chan-Lau
Affiliation	IMF
Title	Balance Sheet Network Analysis of Too-Connected-to-Fail Risk in Global and Domestic Banking Systems
Summary / Abstract	The 2008/2009 financial crisis highlighted the importance of evaluating vulnerabilities owing to interconnectedness, or Too-Connected-to-Fail risk, among financial institutions for country monitoring, financial surveillance, investment analysis and risk management purposes. This paper illustrates the use of balance sheet-based network analysis to evaluate interconnectedness risk, under extreme adverse scenarios, in banking systems in mature and emerging market countries, and between individual banks in Chile, an advanced emerging market economy." Source: IMF Working Paper No. 10/107
URL	http://www.imf.org/external/pubs/ft/wp/2010/wp10107.pdf
Remarks	Another application of balance sheet-based network analysis.

Record ID	43 [ Page 7 of 7, No. 55 ]
Date	2010-04
Author	Kimberly Beaton, Carlos de Resende, René Lalonde, and Stephen Snudden
Affiliation	Bank of Canada
Title	Prospects for Global Current Account Rebalancing
Summary / Abstract	The authors use the Bank of Canada's version of the Global Economy Model, a multi-country, multi-sector dynamic stochastic general-equilibrium model with an active banking system (the BoC-GEM-FIN), to study the evolution of global current account balances following the recent global financial crisis. More specifically, they use several shocks from the model to generate a simulated baseline scenario that mimics: (i) the initial, pre-crisis state of disequilibrium in global current account balances, and (ii) the effects of the crisis, including those of the policy responses undertaken worldwide. The authors find that a sufficient set of conditions and policies for a sustainable resolution of the global current account imbalances relies on three key elements: (i) a continuous upward adjustment of U.S. private savings, (ii) fiscal consolidation in advanced countries, and (iii) an orderly adjustment of exchange rates. These three criteria facilitate a gradual decline in the U.S. current account deficit going forward. A fourth key element, the implementation of policies aimed at stimulating domestic demand in emerging Asia, is needed to ensure that the counterpart of the decrease in the U.S. current account deficit is mainly a reduction in the surpluses of emerging Asia. Sensitivity analysis based on deviations from these conditions illustrates the factors behind the main results and the costs associated with the alternative scenarios considered. Source: Bank of Canada Discussion Paper 2010-4

Record ID	44 [ Page 7 of 7, No. 56 ]
Date	2010-04
Author	Marco A. Espinosa-Vega and Juan Solé
Affiliation	IMF
Title	Cross-Border Financial Surveillance: A Network Perspective
Summary / Abstract	Effective cross-border financial surveillance requires the monitoring of direct and indirect systemic linkages. This paper illustrates how network analysis could make a significant contribution in this regard by simulating different credit and funding shocks to the banking systems of a number of selected countries. After that, we show that the inclusion of risk transfers could modify the risk profile of entire financial systems, and thus an enriched simulation algorithm able to account for risk transfers is proposed. Finally, we discuss how some of the limitations of our simulations are a reflection of existing information and data gaps, and thus view these shortcomings as a call to improve the collection and analysis of data on cross-border financial exposures. Source: IMF Working Paper No. 10/105
URL	http://www.imf.org/external/pubs/ft/wp/2010/wp10105.pdf
Remarks	This is an IMF WP coming from the Money and Capital Markets Dept, using a pretty simple balance sheet identities' framework they call "network analysis."

Record ID	46 [ Page 7 of 7, No. 57 ]
Date	2010-04
Author	Ruben Atoyan
Affiliation	IMF
Title	Beyond the Crisis: Revisiting Emerging Europe’s Growth Model
Summary / Abstract	Focusing on the nexus between economic growth and buildup of external vulnerabilities, this paper provides a systematic account of different growth strategies followed in Central and Eastern Europe in 2000-08 and then uses this growth diagnostics to derive implications for the post-crisis recovery. The main findings point to three policy lessons for improving growth sustainability. First, greater reliance on tradable sectors should be the cornerstone of the future growth model. Second, enhancing domestic sources of bank credit funding would contribute to mitigation of external vulnerabilities and make domestic financial system more resilient to global financial shocks. Third, prudential and macroeconomic policies will have to be more proactive in managing capital inflows, including funneling these inflows into investment in the export-oriented industries. Source: IMF Working Paper No. 10/92
URL	http://www.imf.org/external/pubs/ft/wp/2010/wp1092.pdf
Remarks	This is an empirical paper linking economic growth to external vulnerabilities, going beyond the recent crisis, and using the experiences and data on Central and Eastern Europe from 2000-08. Using cluster analysis and multinomial logit model, the author draws three major policy conclusions: "First, greater reliance on tradable sectors should be the cornerstone of the future growth model. Second, enhancing domestic sources of bank credit funding would contribute to mitigation of external vulnerabilities and make domestic financial system more resilient to global financial shocks. Third, prudential and macroeconomic policies will have to be more proactive in managing capital inflows, including funneling these inflows into investment in the export-oriented industries." All the above policy conclusions are identical to the macroeconomic policies for stable growth that I analyzed and derived in my World Scientific book.

Record ID	2 [ Page 7 of 7, No. 58 ]
Date	2010-03
Author	Alan S. Blinder
Affiliation	Princeton University
Title	Quantitative Easing: Entrance and Exit Strategies
Summary / Abstract	Apparently, it can happen here. On December 16, 2008, the Federal Open Market Committee (FOMC), in an effort to fight what was shaping up to be the worst recession since 1937, reduced the federal funds rate to nearly zero.1 From then on, with all of its conventional ammunition spent, the Federal Reserve was squarely in the brave new world of quantitative easing. Chairman Ben Bernanke tried to call the Fed�s new policies credit easing, probably to differentiate them from what the Bank of Japan had done earlier in the decade, but the label did not stick. URL:http://d.repec.org/n?u=RePEc:pri:cepsud:1219&r=mac
Keywords	Recession, Federal Reserve, open market committee, banking policy, deflation, monetary policy
URL	http://d.repec.org/n?u=RePEc:pri:cepsud:1219&r=mac
Remarks	http://www.princeton.edu/~ceps/workingpapers/204blinder.pdf

Record ID	39 [ Page 7 of 7, No. 59 ]
Date	2010-03
Author	Ida Wolden Bache, Leif Brubakk and Junior Maih
Title	Simple rules versus optimal policy: what fits?
Summary / Abstract	We estimate a small open-economy DSGE model for Norway with two specifications of monetary policy: a simple instrument rule and optimal policy based on an intertemporal loss function. The empirical fit of the model with optimal policy is as good as the model with a simple rule. This result is robust to allowing for misspecification following the DSGE-VAR approach proposed by Del Negro and Schorfheide (2004). The interest rate forecasts from the DSGE-VARs are close to Norges Bank's official forecasts since 2005. One interpretation is that the DSGE-VAR approximates the judgment imposed by the policymakers in the forecasting process. Source: Norges Bank Working Paper No. 2010-03
Keywords	DSGE models, forecasting, optimal monetary policy
Remarks	This is an empirical study by economists from the Monetary Policy Dept of the Central Bank of Norway.

Record ID	45 [ Page 7 of 7, No. 60 ]
Date	2010-02
Author	Structural macro-econometric modelling in a policy environment
Affiliation	Federal Reserve Bank of Kansas City
Title	Structural macro-econometric modelling in a policy environment
Summary / Abstract	In this paper we review the evolution of macroeconomic modelling in a policy environment that took place over the past sixty years. We identify and characterise four generations of macro models. Particular attention is paid to the fourth generation -- dynamic stochastic general equilibrium models. We discuss some of the problems in how these models are implemented and quantified. Source: Research Working Paper of the Federal Reserve Bank of Kansas City
Keywords	Structural macro-econometric modelling in a policy environment
Remarks	This is a very useful survey paper (jointly with Martin Fukac) by the world-renowned Australian econometrician, Adrian Pagan, whom I met in Singapore when we were both Visiting Profs at Bobby Mariano's SMU during 2005-06. By policy environment, they mean "central banking."

Record ID	47 [ Page 7 of 7, No. 61 ]
Date	2010-02
Author	Jordi Galí
Affiliation	CREI, Universitat Pompeu Fabra, and Barcelona GSE
Title	Monetary Policy and Unemployment
Summary / Abstract	Much recent research has focused on the development and analysis of extensions of the New Keynesian framework that model labor market frictions and unemployment explicitly. The present paper describes some of the essential ingredients and properties of those models, and their implications for monetary policy.
Keywords	nominal rigidities, labor market frictions, wage rigidities
Remarks	This is a paper by Jordi Gali, to be included as a chapter in the Handbook of Monetary Economics (ed. by B. Friedman and M Woodford). It explicitly incorporates labor market frictions and unemployment in a DSGE framework.

Record ID	6 [ Page 7 of 7, No. 62 ]
Date	2010
Author	Various Authors
Title	Links to IMF Working Papers maintained at http://ideas.repec.org/
Summary / Abstract	Contact information of International Monetary Fund: Postal: International Monetary Fund, Washington, DC USA Phone: (202) 623-7000 Fax: (202) 623-4661 Email: publicaffairs@imf.org Web page: http://www.imf.org/external/pubind.htm More information through EDIRC Order information: Web: http://www.imf.org/external/pubs/pubs/ord_info.htm For technical questions regarding this series, please contact JBeardow@imf.org (Jim Beardow) or baum@bc.edu (Christopher F. Baum) Series handle: repec:imf:imfwpa Citations RSS feed: at CitEc
URL	http://ideas.repec.org/s/imf/imfwpa.html

Record ID	9 [ Page 7 of 7, No. 63 ]
Date	2010
Author	Edsel Beja Jr.
Affiliation	Ateneo de Manila University
Title	Is inflation targeting preferred by Filipinos?
Summary / Abstract	Analysis of World Values Survey 2000 data for the Philippines finds that lower income Filipinos are more likely than the upper income ones to support inflation targeting. The same can be said of older, healthier, and employed Filipinos but not of the educated and financially satisfied ones. Given the profile of people who preferred inflation targeting, the shift from monetary targeting to inflation targeting is deemed a pro-poor policy shift. Further analyses find that, in 2000, at least 53.1% of Filipino households preferred inflation targeting; in other words, the preference of Filipino society in 2000 was in line with the preference of the Bangko Sentral ng Pilipinas for inflation targeting. URL:http://d.repec.org/n?u=RePEc:pra:mprapa:24382&r=mac
Keywords	Inflation targeting; central bank policy; Philippines; Filipino preference
URL	http://mpra.ub.uni-muenchen.de/24382/
Remarks	This piece by Edsel from Ateneo should provide comfort to BSP.

Record ID	14 [ Page 7 of 7, No. 64 ]
Date	2010
Author	John B. Taylor
Title	Does the Crisis Experience Call for a New Paradigm in Monetary Policy?
Summary / Abstract	This paper shows that the monetary policy paradigm that was in place before the financial crisis worked very well and that the crisis occurred only after policy makers deviated from that paradigm. The paper also evaluates monetary policy during the financial crisis by dividing the crisis into three periods: pre-panic, panic and post-panic. It shows that the extraordinary measures did not work well in the pre-panic or the post-panic periods; instead they helped bring on the panic, even though they may have some positive impact during the panic. The implication of the paper is that the crisis does not call for a new paradigm for monetary policy. URL: http://d.repec.org/n?u=RePEc:sec:cnstan:0402&r=mon - http://www.case.com.pl/upload/publikacja_plik/30087204_CNSA_402.pdf
Keywords	financial crisis, monetary policy rule, Taylor rule, quantitative easing
URL	http://d.repec.org/n?u=RePEc:sec:cnstan:0402&r=mon

Record ID	16 [ Page 7 of 7, No. 65 ]
Date	2010
Author	Dale F. Gray, Carlos Garcia, Leonardo Luna and Jorge Restrepo
Affiliation	International Monetary Fund, Washington D.C.-USA, ILADES-Georgetown University, Universidad Alberto Hurtado, Transelec, Chile), Banco Central de Chile
Title	Incorporating Financial Sector Risk Into Monetary Policy Models: Application to Chile
Summary / Abstract	This article analyzes whether market-based financial stability indicators (FSIs) should be included in monetary policy models and, if so, how.1 Since the economy and interest rates affect financial sector credit risk, and the financial sector affects the economy, this article builds a model of financial sector vulnerability and integrates it into a macroeconomic framework, typically used for monetary policy analysis. More specifically, should the central bank explicitly include the financial stability indicator in its monetary policy (interest rate) reaction function? This is the most important question to be answered in this article. The alternative would be to react only indirectly to financial risk by reacting to inflation and gross domestic product (GDP) gaps, since they already include the effect that financial factors have on the economy. URL:http://d.repec.org/n?u=RePEc:ila:ilades:inv229&r=mac
Keywords	financial sector risk, monetary policy models
URL	http://www.economia.uahurtado.cl/pdf/publicaciones/inv229.pdf

Record ID	18 [ Page 7 of 7, No. 66 ]
Date	2010
Author	Carlos Garcia and Wildo Gonzalez
Affiliation	ILADES-Georgetown University, Universidad Alberto Hurtado and Banco Central de Chile
Title	Is more exchange rate intervention necessary in small open economies? The role of risk premium and commodity shocks
Summary / Abstract	We estimate how the monetary policy works in small open economies with inflation target. To do so, we build a dynamic stochastic general equilibrium model that incorporates the basic features of these economies. We conclude that the monetary policy in a group of representative small open economies (including Australia, Chile, Colombia, Peru and New Zealand) presents strong differences due to shocks from the international financial markets (risk premium shocks, mainly) that explain mostly the variability of the real exchange rate, which has important reallocation effects in the short run. By using the allocations of the Ramsey problem as benchmark, this article shows that if the central banks in small open economies want to reduce the observed volatility of the inflation rate and the output gap, more exchange rate intervention is necessary in order to reduce the volatility produced by risk premium shocks.
Keywords	Small open economies economy models; monetary policy rules; exchange rates; Bayesian econometrics, Risk premium shocks, Ramsey problem.
URL	http://d.repec.org/n?u=RePEc:ila:ilades:inv248&r=mon
Remarks	I thought this study may be relevant to the BSP (W. Gonzalez is with the central bank of Chile)...

Record ID	19 [ Page 7 of 7, No. 67 ]
Date	2010
Author	Carlos Garcia, Jorge Restrepo and Scott Roger
Affiliation	ILADES-Georgetown University, Universidad Alberto Hurtado, Banco Central de Chile and IMF Institute, International Monetary Fund, Washington D.C.-USA
Title	Hybrid Inflation Targeting Regimes
Summary / Abstract	This paper uses a DSGE model to examine whether including the exchange rate explicitly in the central bank’s policy reaction function can improve macroeconomic performance. It is found that including an element of exchange rate smoothing in the policy reaction function is helpful both for financially robust advanced economies and for financially vulnerable emerging economies in handling risk premium shocks. As long as the weight placed on exchange rate smoothing is relatively small, the effects on inflation and output volatility in the event of demand and cost-push shocks are minimal. Financially vulnerable emerging economies are especially likely to benefit from some exchange rate smoothing because of the perverse impact of exchange rate movements on activity.
Keywords	Inflation targeting, monetary policy, exchange rate
URL	http://d.repec.org/n?u=RePEc:ila:ilades:inv226&r=mon
Remarks	My ex-IMF colleague Scott Roger, has done considerable work on Inflation Targeting

Record ID	20 [ Page 7 of 7, No. 68 ]
Date	2010
Author	Meixing Dai
Affiliation	University of Strasbourg, France
Title	Financial Market Imperfections and Monetary Policy Strategy
Summary / Abstract	In a model with imperfect money, credit and reserve markets, we examine if an inflation-targeting central bank using the funds rate operating procedure to indirectly control market interest rates also needs a monetary aggregate as policy instrument. We show that if private agents use information extracted from money and financial markets to form inflation expectations and if the access to liquidity is subject to non-price rationing, the central bank can use a narrow monetary aggregate and the discount interest rate as independent policy instruments to reinforce the credibility of its announcements and the role of inflation target as nominal anchor for inflation expectations. This study shows how a monetary policy strategy combining inflation targeting and monetary targeting can be conceived to guarantee macroeconomic stability and the credibility of monetary policy. Friedman’s k-percent money growth rule, generating dynamic instability, and two alternative stabilizing feedback monetary targeting rules are examined.
Keywords	Imperfect financial markets, non-price rationing, inflation targeting, monetary targeting, macroeconomic stability, Friedman’s k-percent rule, feedback money growth rules, two-pillar strategy.
URL	http://d.repec.org/n?u=RePEc:ulp:sbbeta:2010-19&r=mon
Remarks	The model in this paper is simple enough, yet very informative. It is an attempt to provide a theoretical explanation of the ECB's two-pillar monetary policy strategy

Record ID	21 [ Page 7 of 7, No. 69 ]
Date	2010
Author	Kumar, Manmohan S. ; Woo, Jaejoon
Title	Public Debt and Growth
Summary / Abstract	This paper explores the impact of high public debt on long-run economic growth. The analysis, based on a panel of advanced and emerging economies over almost four decades, takes into account a broad range of determinants of growth as well as various estimation issues including reverse causality and endogeneity. In addition, threshold effects, nonlinearities, and differences between advanced and emerging market economies are examined. The empirical results suggest an inverse relationship between initial debt and subsequent growth, controlling for other determinants of growth: on average, a 10 percentage point increase in the initial debt-to-GDP ratio is associated with a slowdown in annual real per capita GDP growth of around 0.2 percentage points per year, with the impact being somewhat smaller in advanced economies. There is some evidence of nonlinearity with higher levels of initial debt having a proportionately larger negative effect on subsequent growth. Analysis of the components of growth suggests that the adverse effect largely reflects a slowdown in labor productivity growth mainly due to reduced investment and slower growth of capital stock. Source: IMF Working Paper No. 10/174
URL	http://www.imf.org/external/pubs/cat/longres.cfm?sk=24080.0
Remarks	The last sentence in the summary below identifies precisely the transmission mechanisms described and analyzed in my book, Macroeconomic Policies for Stable Growth, chapters 3, 5, and 7.

Record ID	23 [ Page 7 of 7, No. 70 ]
Date	2010
Author	Zhang, Yanan; Ji, Lu; Liu, Fei
Title	Local Housing Market Cycle and Loss Given Default: Evidence from Sub-Prime Residential Mortgages
Summary / Abstract	This paper studies the impact of housing market cycles on loss given default (LGD). Previous studies have shown that the current loan-to-value ratio (CLTV) is the most important determinant of LGD. This paper establishes another linkage which is between the house price cycles before the time of mortgage origination and LGD. The empirical analysis is based on a large loan-level sub-prime residential mortgage loss dataset from 1998 to 2009. Results show that house price history has a long memory in explaining LGD. Its explanatory power far exceeds the original LTV and other loan characteristics. This paper offers a countercyclical view of LGD risk. The model can be combined with a default probability model to serve as a regulatory prudential tool. Such a tool provides a solution to the inherent procyclical bias in BASEL II capital requirements, and can contribute to the safety and soundness of banking institutions. Source: IMF Working Paper No. 10/167
URL	http://www.imf.org/external/pubs/cat/longres.cfm?sk=24057.0

Record ID	25 [ Page 7 of 7, No. 71 ]
Date	2010
Author	Kevin Clinton, Michael Kumhof, Douglas Laxton and Susanna Mursula
Affiliation	IMF
Title	Budget Consolidation: Short-Term Pain and Long-Term Gain
Summary / Abstract	The paper evaluates the costs and benefits of fiscal consolidation using simulations based on the IMFs global DSGE model GIMF. Over the longer run, well-targeted permanent reductions in budget deficits lead to a considerable increase in both the growth rate and the level of output. The gains may be enhanced by shifting some of the tax burden from incomes to consumption. In the short run, credibility plays a crucial role in determining the size of initial output loses. Global current account imbalances would be significantly reduced if budget consolidation was larger in countries with current account deficits. Source: IMF Working Paper No. 10/163
URL	http://www.imf.org/external/pubs/cat/longres.cfm?sk=24044.0

Record ID	26 [ Page 7 of 7, No. 72 ]
Date	2010
Author	Gulcin Ozkan, F.; Unsal, D. Filiz
Title	External Finance, Sudden Stops, and Financial Crisis: What is Different This Time?
Summary / Abstract	This paper develops a two-country DSGE model to investigate the transmission of a global financial crisis to a small open economy. We find that economies hit by a sudden stop arising from financial distress in the global economy are likely to face a more prolonged crisis than sudden stop episodes of domestic origin. Moreover, in contrast to the existing literature, our results suggest that the greater a country's trade integration with the rest of the world, the greater the response of its macroeconomic aggregates to a sudden stop of capital flows. Source: IMF Working Paper No. 10/158:
URL	http://www.imf.org/external/pubs/cat/longres.cfm?sk=24034.0

Record ID	28 [ Page 7 of 7, No. 73 ]
Date	2010
Author	Benjamin Friedman and Kenneth Kuttner
Affiliation	Harvard University and Williams College
Title	Implementation of Monetary Policy: How Do Central Banks Set Interest Rates?
Summary / Abstract	Central banks no longer set the short-term interest rates that they use for monetary policy purposes by manipulating the supply of banking system reserves, as in conventional economics textbooks; today this process involves little or no variation in the supply of central bank liabilities. In effect, the announcement effect has displaced the liquidity effect as the fulcrum of monetary policy implementation. The chapter begins with an exposition of the traditional view of the implementation of monetary policy, and an assessment of the relationship between the quantity of reserves, appropriately defined, and the level of short-term interest rates. Event studies show no relationship between the two for the United States, the Euro-system, or Japan. Structural estimates of banks’ reserve demand, at a frequency corresponding to the required reserve maintenance period, show no interest elasticity for the U.S. or the Euro-system (but some elasticity for Japan). The chapter next develops a model of the overnight interest rate setting process incorporating several key features of current monetary policy practice, including in particular reserve averaging procedures and a commitment, either explicit or implicit, by the central bank to lend or absorb reserves in response to differences between the policy interest rate and the corresponding target. A key implication is that if reserve demand depends on the difference between current and expected future interest rates, but not on the current level per se, then the central bank can alter the market-clearing interest rate with no change in reserve supply. This implication is borne out in structural estimates of daily reserve demand and supply in the U.S.: expected future interest rates shift banks’ reserve demand, while changes in the interest rate target are associated with no discernable change in reserve supply. The chapter concludes with a discussion of the implementation of monetary policy during the recent financial crisis, and the conditions under which the interest rate and the size of the central bank’s balance sheet could function as two independent policy instruments.
Keywords	Reserve supply, reserve demand, liquidity effect, announcement effect
URL	http://d.repec.org/n?u=RePEc:wil:wileco:2010-03&r=mac

Record ID	29 [ Page 7 of 7, No. 74 ]
Date	2010
Author	Vitek, Francis
Title	Monetary Policy Analysis and Forecasting in the Group of Twenty: A Panel Unobserved Components Approach
Summary / Abstract	This paper develops a panel unobserved components model of the monetary transmission mechanism in the world economy, disaggregated into twenty national economies along the lines of the Group of Twenty. This structural macroeconometric model features extensive linkages between the real and financial sectors, both within and across economies. A variety of monetary policy analysis and forecasting applications of the estimated model are demonstrated, based on a Bayesian framework for conditioning on judgment. Source: IMF Working Paper No. 10/152
URL	http://www.imf.org/external/pubs/cat/longres.cfm?sk=23996.0

Record ID	48 [ Page 7 of 7, No. 75 ]
Date	2009-12
Author	Morten L. Bech and Elizabeth Klee
Affiliation	Federal Reserve Bank of New York
Title	The Mechanics of a Graceful Exit: Interest on Reserves and Segmentation in the Federal Funds Market
Summary / Abstract	To combat the financial crisis that intensified in the fall of 2008, the Federal Reserve injected a substantial amount of liquidity into the banking system. The resulting increase in reserve balances exerted downward price pressure in the federal funds market, and the effective federal funds rate began to deviate from the target rate set by the Federal Open Market Committee. In response, the Federal Reserve revised its operational framework for implementing monetary policy and began to pay interest on reserve balances in an attempt to provide a floor for the federal funds rate. Nevertheless, following the policy change, the effective federal funds rate remained below not only the target but also the rate paid on reserve balances. We develop a model to explain this phenomenon and use data from the federal funds market to evaluate it empirically. In turn, we show how successful the Federal Reserve may be in raising the federal funds rate even in an environment with substantial reserve balances. Source: NY Fed Staff Report no. 416 December 2009
Keywords	federal funds, segmentation, interest on reserves, corridor system, exit strategy

Record ID	40 [ Page 7 of 7, No. 76 ]
Date	2009
Author	David Parsley and Helen Popper
Affiliation	Vanderbilt University and Santa Clara University
Title	Evaluating Exchange Rate Management An Application to Korea
Summary / Abstract	This paper uses data-rich estimation techniques to study monetary policy in an open economy. We apply the techniques to a small, forward-looking model and explore the importance of the exchange rate in the monetary policy rule. This approach allows us to discern whether a monetary authority targets the exchange rate per se, or instead simply responds to the exchange rate in order to achieve its other objectives. The approach also removes a downward bias on the estimate of the extent of inflation targeting. We find that this bias is important in the case of Korea, a de jure inflation targeter. In contrast to previous studies, our findings suggest that the Bank of Korea actively targets inflation, not the exchange rate. Apparently, the exchange rate has been only indirectly important in Korea's monetary policy. Source: HKIMR Working Paper No.28/2009
URL	http://www.hkimr.org/view_attachment.asp?type=23&id=223
Remarks	This is a useful empirical study on the role of the exchange rate in the monetary policy rule of an IT country. I venture to guess that the authors' conclusion that BoK targets inflation and not the exchange rate is equally applicable to the BSP; of course, this can be tested with Philippine data using the same forward-looking model and estimation techniques of this paper.

Record ID	34 [ Page 7 of 7, No. 77 ]
Date	2006-08
Author	V. V. Chari and Patrick J. Kehoe
Affiliation	University of Minnesota and Federal Reserve Bank of Minneapolis
Title	Modern Macroeconomics in Practice: How Theory Is Shaping Policy
Summary / Abstract	Theoretical advances in macroeconomics made in the last three decades have had a major influence on macroeconomic policy analysis. Moreover, over the last several decades, the United States and other countries have undertaken a variety of policy changes that are precisely what macroeconomic theory of the last 30 years suggests. The three key developments that have shaped macroeconomic policy analysis are the Lucas critique of policy evaluation due to Robert Lucas, the time inconsistency critique of discretionary policy due to Finn Kydland and Edward Prescott, and the development of quantitative dynamic stochastic general equilibrium models following Finn Kydland and Edward Prescott. Source: Federal Reserve Bank of Minneapolis, Research Department Staff Report 376
URL	http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=1093
Remarks	This is another useful survey of theoretical developments in the last 30 years that have shaped macroeconomic and central banking policies, written by Chari and Kehoe of the University of Minnesota and the Fed Res Bank of Minneapolis.

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