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International Monetary Fund

This Selected Issues paper and Statistical Appendix focuses on two analytical approaches for judging whether the current account for Australia is sustainable. The paper implements the first approach, by asking how Australia’s net external liability position is likely to evolve over time, based on assumptions of future growth and interest rates. The paper implements the second approach by exploring the implications of a model of optimal external borrowing and lending. The main conclusions are also discussed in the paper.

International Monetary Fund

This paper analyzes several issues regarding fiscal sustainability and fiscal adjustment in Brazil during 1990 and searches for econometric evidence of a monetary dominant regime during some subperiods. The following statistical data are also presented in detail: macroeconomic flows and balances, industrial production, consumer price index, relative public sector prices and tariffs, minimum wage statistics, financial system loans, monetary aggregates, exports by principal commodity groups, direction of trade, detailed balance of payments, total external debt, central government operations, and so on.

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.

International Monetary Fund

The paper discusses the purpose, properties, and theoretical foundations of various indicators of inflation and also describes the forecasting methodology and performance of these indicators. It reviews the successful European labor market reform experiences and analyzes regulatory and supervisory frameworks in the European Union (EU), and assessments carried out under the IMF-World Bank Financial Sector Assessment Program (FSAP). It also investigates whether the cross-country correlation of bank business in Europe makes a good case for pan-European supervision.

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.

Mr. Christopher W. Crowe
I test whether inflation targeting (IT) enhances transparency using inflation forecast data for 11 IT adoption countries. IT adoption promotes convergence in forecast errors, suggesting that it enhances transparency. This effect is robust to dropping observations, is strengthened by using instrumental variable estimation to eliminate mean-reversion, and is absent in placebo regressions (where IT adoption is shifted by a year). This result supports Morris and Shin's (2002) contention that better public information is most beneficial for forecasters with bad private information. However, it does not support their hypothesis that better public information could make private forecasts less accurate.
Ms. Katerina Smídková, Viktor Kotlán, David Navrátil, and Mr. Ales Bulir
Inflation-targeting central banks have a respectable track record at explaining their policy actions and corresponding inflation outturns. Using a simple forward-looking policy rule and an assessment of inflation reports, we provide a new methodology for the empirical evaluation of consistency in central bank communication. We find that the three communication tools-inflation targets, inflation forecasts, and verbal assessments of inflation factors contained in quarterly inflation reports-provided a consistent message in five out of six observations in our 2000-05 sample of Chile, the Czech Republic, Hungary, Poland, Thailand, and Sweden.
Pär Österholm and Mr. Helge Berger
We use a mean-adjusted Bayesian VAR model as an out-of-sample forecasting tool to test whether money growth Granger-causes inflation in the euro area. Based on data from 1970 to 2006 and forecasting horizons of up to 12 quarters, there is surprisingly strong evidence that including money improves forecasting accuracy. The results are very robust with regard to alternative treatments of priors and sample periods. That said, there is also reason not to overemphasize the role of money. The predictive power of money growth for inflation is substantially lower in more recent sample periods compared to the 1970s and 1980s. This cautions against using money-based inflation models anchored in very long samples for policy advice.