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International Monetary Fund. European Dept.
This paper identifies policies to increase productivity in the East, reduce regional income disparities, and promote overall income convergence. Achieving this objective will require improving educational attainment and reducing skill mismatches in the East, scaling up public infrastructure to attract investment to less productive regions, and facilitating labor mobility. This paper also discusses female labor participation in Poland and the potential impact on bank profitability of the recently implemented bank asset tax. Poland’s population is aging, yet it has an important underused source of qualified labor—its women. For Poland to unleash its full economic potential, it needs to embrace the vital contribution that women can make to its economy.
Carlos Caceres, Mr. Yan Carriere-Swallow, and Bertrand Gruss
Is the Mundell-Fleming trilemma alive and well? International co-movement of asset prices takes place alongside synchronized business cycles, complicating the identification of financial spillovers and assessments of monetary policy autonomy. A benchmark for interest rate comovement is to impose the null hypothesis that central banks respond only to the outlook for domestic inflation and output. We show that common approaches used to estimate interest rate spillovers tend to understate the degree of monetary autonomy enjoyed by small open economies with flexible exchange rates. We propose an empirical strategy that partials out those spillovers that are associated with impaired monetary autonomy. Using this approach, we revisit the predictions of the trilemma and find more compelling evidence that flexible exchange rates deliver monetary autonomy than prior work has suggested.
Mr. Francis Vitek
This paper analyzes the transmission of shocks and policies among and across the Nordic economies and the rest of the world. This spillover analysis is based on a pair of estimated structural macroeconometric models of the world economy, disaggregated into thirty five national economies. We find that the Nordic economies are heavily exposed to external macroeconomic and financial shocks, but have significant scope to mitigate their domestic macroeconomic impacts through coordinated policy responses, given their high degree of regional integration.
International Monetary Fund
This paper uses VAR models to examine the magnitude and sources of growth spillovers to the Baltics from key trading partners, as well asfrom the real effective exchange rate (REER). Our results show there are significant cross-country spillovers to the Baltics with those from the EU outweighing spillovers from Russia. Shocks to the REER generally depress growth in the Baltics, and this intensifies over time. We also find that financial and trade channels dominate the transmission of spillovers to the region which partly explains the realization of downside risks to the Baltics from the global slowdown.
Mr. Heedon Kang, Mr. Francis Vitek, Ms. Rina Bhattacharya, Mr. Phakawa Jeasakul, Ms. Sònia Muñoz, Naixi Wang, and Rasool Zandvakil
This paper analyzes cross-border macrofinancial spillovers from a variety of macroprudential policy measures, using a range of quantitative methods. Event study and panel regression analyses find that liquidity and sectoral macroprudential policy measures often affect cross-border bank credit, whereas capital measures do not. This empirical evidence is stronger for tightening than for loosening measures, is distributed across credit leakage and reallocation effects, and is generally regionally concentrated. Consistently, structural model based simulation analysis indicates that output and bank credit spillovers from sectoral macroprudential policy shocks are generally small worldwide, but are regionally concentrated and economically significant for countries connected by strong trade or financial linkages. This simulation analysis also indicates that countercyclical capital buffer adjustments have the potential to generate sizeable regional spillovers.