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Cover IMF Working Papers
Inflation Dynamics in the Western Balkans
Gohar Minasyan
,
Ezgi O. Ozturk
,
Magali Pinat
,
Mengxue Wang
, and
Zeju Zhu
After trailing Euro Area inflation closely in the recent past, inflation in the Western Balkans has accelerated faster since early 2022 on the back of the shocks to global commodity prices, strong recovery from the pandemic, and lingering supply bottlenecks. This paper employs two complementary empirical approaches of an augmented Phillips curve and structural VAR, adapting them to the data availability and country specificities of the Western Balkans, to analyze the inflation dynamics in the region. It finds that international food prices affect not only headline but also core inflation as well as inflation expectations. Further, inflation in the Western Balkans is not just determined by foreign shocks, and domestic factors, aggregate demand shocks in particular, have a significant impact on inflation. These findings imply a possible role for policies to temporarily limit an immediate and complete pass-through of international to domestic food prices while also stressing the importance of an appropriate domestic macroeconomic policy mix to keep inflation expectations anchored and safeguard credibility in the face of high inflation persistence.
Keywords:
Inflation; Western Balkans; international food price shocks; commodity price shocks; Phillips curve; panel data; structural VAR; inflation expectation; inflation dynamics; inflations determinant; inflation development; inflation in the Western Balkans; Food prices; Energy prices; Nominal effective exchange rate; Global; Europe
Cover IMF Working Papers
2022 Update of the External Balance Assessment Methodology
Mr. Cian Allen
,
Camila Casas
,
Mr. Giovanni Ganelli
,
Luciana Juvenal
,
Mr. Daniel Leigh
,
Mr. Pau Rabanal
,
Cyril Rebillard
,
Jair Rodriguez
, and
João Tovar Jalles
The assessment of external positions and exchange rates of member countries is a key mandate of the IMF. The External Balance Assessment (EBA) methodology has provided the framework for conducting external sector assessments by Fund staff since its introduction in 2012. This paper provides the latest version of the EBA methodology, updated in 2022 with additional refinements to the current account and real exchange rate regression models, as well as updated estimates for other components of the EBA methodology. The paper also includes an assessment of how estimated current account gaps based on EBA are associated with future external adjustment.
Keywords:
Current accounts; exchange rates; external sustainability; external sector assessments; global imbalances; OECD product market; EBA gaps adjustment; EBA current account model; EBA REER; labor market rigidity; External balance assessment (EBA); Real effective exchange rates; Current account; Current account balance; Real exchange rates; Global
Cover IMF Working Papers
Identifying Optimal Indicators and Lag Terms for Nowcasting Models
Jing Xie
Many central banks and government agencies use nowcasting techniques to obtain policy relevant information about the business cycle. Existing nowcasting methods, however, have two critical shortcomings for this purpose. First, in contrast to machine-learning models, they do not provide much if any guidance on selecting the best explantory variables (both high- and low-frequency indicators) from the (typically) larger set of variables available to the nowcaster. Second, in addition to the selection of explanatory variables, the order of the autoregression and moving average terms to use in the baseline nowcasting regression is often set arbitrarily. This paper proposes a simple procedure that simultaneously selects the optimal indicators and ARIMA(p,q) terms for the baseline nowcasting regression. The proposed AS-ARIMAX (Adjusted Stepwise Autoregressive Moving Average methods with exogenous variables) approach significantly reduces out-of-sample root mean square error for nowcasts of real GDP of six countries, including India, Argentina, Australia, South Africa, the United Kingdom, and the United States.
Keywords:
Nowcasting; Mixed Frequency; Forecasting; Business Cycles; selection procedure; Annex I. AS-ARIMAX procedure; nowcasting method; evaluation comparison; baseline model; Global
Cover IMF Committee on Balance of Payments Statistics : Annual Report 2022
IMF Committee on Balance of Payments Statistics : Annual Report 2022
International Monetary Fund. Statistics Dept.

Abstract

The 2022 Annual Report of the IMF Committee on Balance of Payments Statistics (the Committee) provides an overview of recent trends in global balance of payments and international investment position statistics, on this occasion with special emphasis on the significant effects of the pandemic on selected balance of payments components, particularly cross-border trade, tourism, and financial flows. The Report also summarizes the Committee’s work and presents the work program for the coming year.

Cover IMF Staff Country Reports
Belgium: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Belgium
International Monetary Fund. European Dept.
Post-pandemic recovery slowed with spillovers from Russia’s war in Ukraine and high inflation, financial conditions tightening, and elevated uncertainty. In response to the spike of energy prices, the federal and regional authorities provided timely and substantial support to households and firms. Along with automatic indexation of wages and benefits, energy support helped cushion impacts, although at significant cost, increasing the fiscal deficit in 2022 and 2023. The labor market has remained tight, with record-high job creation and low unemployment. The external current account swung to a large deficit in 2022, due largely to higher energy imports and lower vaccine exports. Energy consumption is being cut, and gas imports reoriented. A resilient financial sector is facing challenges from the weaker macro-financial environment.
Keywords:
product market reform; indexation mechanism; money market rate; policy reform; consumer confidence; Policy discussion; State secretaries Bertrand; Energy prices; Inflation; Wage indexation; Wages; Anti-money laundering and combating the financing of terrorism (AML/CFT); Global
Cover IMF Staff Country Reports
Belgium: Selected Issues
International Monetary Fund. European Dept.
Selected Issues
Keywords:
D. policy option; Policy recommendation; B. EU; EU ETS price; community government; Greenhouse gas emissions; Fiscal federalism; Carbon tax; Global; Europe; Baltics
Cover Selected Issues Papers
Fiscal Policy Options to Accelerate Emissions Reductions in Belgium: Belgium
Nate Vernon
Belgium’s current policies fall short of achieving its climate targets and promoting emissions reductions at limited economic costs. We recommend that domestic carbon pricing form the centerpiece of an emissions reduction package, as pricing promotes mitigation at the lowest economic cost, can be phased in as international energy prices fall, and generates revenue to compensate vulnerable households and reduce taxes on productive activities. Sectoral policies, such as subsidy-tax schemes to promote low emissions vehicles, should reinforce carbon pricing and regional efforts, while the social protection system can be made more efficient and environmentally friendly by switching from energy subsidies to income-based support. Belgium should also promote dialogue at the EU-level to harmonize ETS prices and include all sectors under a single trading scheme.
Keywords:
Environmental taxes and subsidies; fiscal policy; environmental economics; distributional effects; climate; ETS price; fiscal policy option; sectoral policy; B. EU; Policy recommendation; emissions reduction package; Greenhouse gas emissions; Carbon tax; Electricity; Natural gas sector; Global; Europe
Cover Selected Issues Papers
Wage Indexation and International Competitiveness in Belgium: An Uneasy Coexistence: Belgium
André Geis
Belgium is one of a small group of euro area countries that maintains indexation of wages to inflation as part of its wage setting framework. With intensified price pressures since late 2020 driving inflation to record levels, the tension between compensating workers for purchasing power losses while maintaining international competitiveness have again been highlighted. To improve the performance and viability of the current setup, several avenues of reform could be envisaged. In particular, the scope for excluding price increases in highly volatile components, like energy and food, from the indexation basis should be explored to less the need to restore competitiveness by prolonged periods of real wage restraint. Moreover, options to widen the flexibility of the indexation regime should be contemplated to alleviate the burden of firms at times of large and multiple shocks, thereby also preserving investment and employment. Finally, productivity trends should also be accounted for to capture deviations of labor costs between Belgium and its key export markets.
Keywords:
inflation; price setting; collective bargaining; wage formation; wage setting; wage indexation; inflation indexation; international competitiveness; indexation basis; indexation regime; energy price inflation; health index inflation driver; Wages; Energy prices; Global; Baltics
Cover Selected Issues Papers
Fiscal Federalism in Belgium: Challenges in Restoring Fiscal Sustainability Belgium: Belgium
Yu Ching Wong
Fiscal decentralization in Belgium progressed substantially in 2015-19. However, as decentralization of expenditure responsibilities continued to outpace decentralization of revenue authority, vertical fiscal gaps and greater reliance on transfers from shared resources may have reduced spending discipline. Consecutive shocks (pandemic, energy prices) have worsened the fiscal positions of all levels of government, requiring urgent and concerted effort to improve fiscal and debt sustainability. Fostering better fiscal policy coordination across all levels of government would improve the efficiency of Belgium’s decentralized fiscal framework. We recommend that fiscal adjustment at the subnational levels should be a part of the general government fiscal consolidation plan, with strict spending limits applying; integrating systematic spending reviews in the budgetary process; and adopting a more strategic, multi-annual fiscal framework to support adjustment. Implementing the 2013 Cooperation Arrangement—intended to provide fiscal rules to govern and coordinate public finances at all levels—is important. Also, the cost of overborrowing at the regional level should be fully internalized; recalibration of transfers could be considered; and some flexibility should be retained in the pace and scope of further decentralization. Finally, there is scope to improve the integration of fiscal sustainability objectives in federal and subnational structural reforms.
Keywords:
fiscal policy; fiscal consolidation; taxation and revenue; budget; deficit; and debt; state and local governments; federal and subnational public finances; fiscal decentralization; federalism; decentralization of expenditure responsibility; community government; consolidation plan; Subnational government; Article IV Consultation Staff Report; Fiscal federalism; Fiscal stance; Global
Cover Finance & Development
Finance & Development, March 2023
International Monetary Fund. Communications Department
Finance & Development, March 2023
Keywords:
inflation expectation; inflation surge; tepid inflation; household inflation expectation; monetary policy committee; Inflation; Inflation targeting; Gold; Silver; Digitalization; Global; Asia and Pacific; Africa; Europe; Caribbean