The Swiss economy has performed relatively well since the global financial crisis. Growth compares favorably with most other advanced countries and aggregate employment has grown robustly. The fiscal position is strong and the external trade surplus remains large and stable despite several episodes of intense appreciation pressure owing to the Swiss franc’s reputation as a safe haven. Growth is expected to temporarily dip to 1.1 percent in 2019 on weakness in external demand. Risks to the outlook are tilted down. Switzerland is also facing several policy challenges: low interest rates are fueling risks in the real estate and mortgage markets; persistent subdued inflation has decreased the operational space for monetary policy; and population aging and technological change will require further upskilling and generate new demands for public resources.
Ms. Emine Boz, Ms. Gita Gopinath, and Mikkel Plagborg-Møller
We document that the U.S. dollar exchange rate drives global trade prices and volumes. Using a
newly constructed data set of bilateral price and volume indices for more than 2,500 country
pairs, we establish the following facts: 1) The dollar exchange rate quantitatively dominates the
bilateral exchange rate in price pass-through and trade elasticity regressions. U.S. monetary
policy induced dollar fluctuations have high pass-through into bilateral import prices. 2) Bilateral
non-commodities terms of trade are essentially uncorrelated with bilateral exchange rates.
3) The strength of the U.S. dollar is a key predictor of rest-of-world aggregate trade volume and
consumer/producer price inflation. A 1 percent U.S. dollar appreciation against all other
currencies in the world predicts a 0.6–0.8 percent decline within a year in the volume of total
trade between countries in the rest of the world, controlling for the global business cycle. 4)
Using a novel Bayesian semiparametric hierarchical panel data model, we estimate that the
importing country’s share of imports invoiced in dollars explains 15 percent of the variance of
dollar pass-through/elasticity across country pairs. Our findings strongly support the dominant
currency paradigm as opposed to the traditional Mundell-Fleming pricing paradigms.
This 2016 Article IV Consultation highlights that the economy of Switzerland withstood relatively well the sharp appreciation that followed the exit from the exchange rate floor. Economic performance has continued to firm in 2016 with support from domestic and external demand. GDP growth is forecast to reach 1.5 percent in 2016, and to stabilize at 1.7 percent over the medium term. Inflation is expected to return to positive territory in 2017 and to continue to rise to the middle of the target band. However, important external and domestic risks could affect this outlook, including resurgence in global financial market volatility, renewed concerns about the financial health of large global banks, and changes in Swiss–European Union economic relations.
This paper presents details of Austria’s 2013 Article IV Consultation. Austria has been growing economically but is facing challenges in the financial sector. Full implementation of medium-term fiscal adjustment plans require specifying several measures and plans that need gradual strengthening to take expected further bank restructuring cost into account. It suggests that strong early bank intervention and resolution tools, a better designed deposit insurance system, and a bank-financed resolution fund would help reduce the need for budgetary support to any troubled banks in the future.
This paper presents key findings of the First Review for Côte d'Ivoire under the Extended Credit Facility. Program performance at end-2011 was broadly satisfactory. All quantitative performance criteria for end-2011 were met, but the implementation of structural reforms has been mixed. Although good progress has been made to strengthen public financial management, improve the business climate, and reform the cocoa-coffee sector, action on other benchmarks for the financial and energy sectors fell short of program targets. Prospects for 2012 are favorable, notwithstanding the weak external environment.
Conventional wisdom postulates that there are benefits from decentralizing government finances but there is little empirical evidence about actual country practices. This paper presents data on fiscal decentralization for about 80 countries over a period of about 20 years (1990-2008) from the IMF’s Government Finance Statistics Yearbook (GFSY), the only global database with fiscal data for several levels of government. The data show that in many countries, revenue collection remains relatively more centralized than expenditures and that employment tends to be concentrated in lower levels of government. Except for transition economies, the levels of decentralization are relatively stable over the time period. The findings are shown by degree of economic development, constitutional power arrangements, and geographic area, broadly confirming key factors identified in the literature as determining the extent of fiscal decentralization.
This 2009 Article IV Consultation highlights that Côte d’Ivoire has embarked on comprehensive reform policies to address the challenges of enhancing growth and reducing poverty. It adopted a Poverty Reduction Strategy Paper in February 2009, which covers the seven-year period 2009–15, and aims to transform the country into an emerging economy. The authorities have strengthened fiscal control and the transparency of budget implementation in recent years while making room to increase pro-poor spending. Significant revenue efforts have facilitated an increase in spending for urgent needs.
Giorgio Valente, Mr. Gene L. Leon, and Lucio Sarno
We provide empirical evidence that deviations from uncovered interest rate parity (UIP) display significant nonlinearities, consistent with theories based on transaction costs or limits to speculation. This evidence suggests that the forward bias documented in the literature may be less indicative of major market inefficiencies than previously thought. Monte Carlo experiments allow us to reconcile these results with the large empirical literature on the forward bias puzzle since we show that, if the true process of UIP deviations were of the nonlinear form we consider, estimation of conventional spot-forward regressions would generate the anomalies documented in previous research.
This paper empirically analyzes the short-run effects of monetary and fiscal policy on aggregate demand, using the two-step structural error correction method. This method has an advantage over the standard reduced-form error correction method in providing a meaningful interpretation for impulse responses. The results are in sharp contrast to those of the traditional Mundell-Fleming and Dornbusch models: after the monetary (fiscal) policy is relaxed, the home currency depreciates (appreciates) for a substantial period of time, and the aggregate demand first expands (contracts) then gradually returns toward its original path.
For the past quarter century, Switzerland’s real per capita growth rate has been substantially slower than in most other industrial countries. Unemployment has declined rapidly to 2.4 percent of the labor force in November 1999 from its 1997 peak of more than 5 percent. Inflation has edged up from exceptionally low levels. Switzerland’s longstanding current account surplus was above 9 percent of gross domestic product in 1998 and is estimated to have risen further in 1999. The franc has shadowed the euro closely since January 1999, fluctuating narrowly around 1.6 Sw F/euro.