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Timothy D. Lane, Mr. Mark E Griffiths, and Mr. Alessandro Prati

HOW can central banks best establish the credibility of monetary policy? Devising a transparent framework for monetary policy, this article suggests, may be an effective way to achieve this.

International Monetary Fund

This paper explores the factors that have led to a Canada-U.S. productivity gap using a sectoral growth accounting approach. Both fiscal and monetary policies have had significant effects on the saving rate. The Canadian dollar’s appreciation was followed by a protracted period of exchange rate weakness. This paper reviews the institutional aspects of Canada’s real return bond program. The Canadian system provides a successful model for pension reform. Free trade has helped promote the integration of U.S. and Canadian economies, but significant differences remain.


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International Monetary Fund

This Selected Issues paper analyzes euro area policies and discusses the implications of the 2007–08 financial sector turbulence for real economic activity. It examines the linkages between the financial and real sectors in the euro area. The paper discusses the European Central Bank’s (ECB) monetary analysis and the role of monetary aggregates in central banking, surveying the ongoing theoretical and empirical debate. The paper also describes the introduction of a “European Mandate” for financial sector authorities in the European Union (EU), a proposal that is under consideration by EU member states.

Michael J. Artis


This paper analyzes the short-term forecasts for industrial and developing countries produced by the IMF and published twice a year in the World Economic Outlook. For the industrial country group, the forecasts for output growth and inflation are satisfactory and pass most conventional tests in forecasting economic developments, although forecast accuracy has not improved over time, and predicting the turning points of the business cycle remains a weakness. For the developing countries, the task of forecasting movements in economic activity is even more difficult and the conventional measures of forecast accuracy are less satisfactory than for the industrial countries. [JEL: E17, E37, F17, F47]

Artis M. J.


Recent developments in the sphere of international economic policy coordination produced an agreement at the May 1986 Tokyo Summit that the major countries should focus on a set of economic indicators as a means of strengthening the degree of cooperation in macroeconomic policymaking already in existence. The Fund was given the formal responsibility for carrying this suggestion forward. In the subsequent development of this idea (see. in particular, Crockett and Goldstein (1987)), emphasis has been given to a taxonomy of indicators of current economic developments, distinguishing those which are signals of policy posture from those which measure intermediate variables, and which in turn are distinguished from those measuring economic performance. Indicators may be used in a number of ways. On a rising scale of increasing international interdependence, they may provide individual countries with a checklist of variables against which to monitor the short-run progress of their economies; they may provide information on the medium-run sustainability of policies; and they may signal in a formal way the need for multilateral discussion of policies.

Paula R. De Masi


The concepts of potential output and the output gap are central to the IMF’s analytical work in providing policy recommendations to member governments. This key role has stimulated research at the IMF to develop and refine estimation techniques. This paper summarizes the methodology and results of IMF research on potential output, which has mainly focused on the industrial countries, but more recently has addressed issues related to developing countries and countries in transition. It then discusses the approaches that country desk officers use for operational purposes, and presents estimates of potential output for the major industrial countries. [JEL: E3].

Masson Paul, Mr. Steven A. Symansky, Mr. Richard D Haas, and Mr. Michael P. Dooley


MULTIMOD (MULTI-region econometric MODel) has been designed to improve the analysis of the effects of industrial country policies on major macro-economic variables, both in the developed and developing worlds.1 It is a continuation of modeling work undertaken at the Fund in recent years, in particular work on the World Trade Model (Spencer (1984)) and MINIMOD (Haas and Masson (1986)), and it supplements individual country and sectoral models, as well as detailed analysis and monitoring performed by country economists. The focus of the model is on the transmission of policy effects, and in this respect therefore it accords well with the Fund’s surveillance over the policies of major countries. More generally, the model can be used to trace the effects of changes in the external environment on the economies of developed and developing countries. To a limited extent, the model can also be used to evaluate policies that developing countries might choose in order to improve their outcomes, for instance, through shifting demand away from consumption and toward investment. However, their monetary and fiscal policy instruments are not at present explicit in the model. The model has not been designed to make unconditional or “baseline” forecasts, nor will it be used for this purpose. Instead, the model has been designed to develop a judgmental baseline forecast that incorporates the detailed knowledge of country economists, and to examine the effects on that baseline of scenarios that involve changes in policies in major countries and other exogenous changes in the economic environment.

Anthony G. Turner and Stephen S. Golub


This paper attempts to extend the range of countries covered by the IMF’s multilateral real exchange rate indices based on relative unit labor costs (REER-ULCs) in manufacturing. A data set was assembled that permits calculation of REER-ULCs for 23 newly industrialized, developing, and transition economies in addition to the 21 industrial countries covered by the current system. Although the results are mostly quite encouraging, they should be considered preliminary because of uncertainty about the reliability and comparability of the underlying data. Also, unit labor costs are not available on as timely a basis as consumer price indices (CPIs), especially for nonindustrial economies. Thus, the ULC-based indicators should supplement rather than replace the current CPI-based system. [JEL: F31, G15, N20, N60, O57]

International Monetary Fund. External Relations Dept.

In a statement issued on March 8, IMF Managing Director Michel Camdessus announced his intention to recommend to the IMF Executive Board that it approve the revised economic program for 1999-2001 proposed by the Brazilian government. The text of News Brief 99/10 follows.