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Business and Economics > Banks and Banking

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Cover IMF Working Papers
Monetary Policy and Inflation Scares
Christopher J. Erceg
,
Jesper Lindé
, and
Mathias Trabandt
A salient feature of the post-COVID inflation surge is that economic activity has remained resilient despite unfavorable supply-side developments. We develop a macroeconomic model with nonlinear price and wage Phillips curves, endogenous intrinsic indexation and an unobserved components representation of a cost-push shock that is consistent with these observations. In our model, a persistent large adverse supply shock can lead to a persistent inflation surge while output expands if the central bank follows an inflation forecast-based policy rule and thus abstains from hiking policy rates for some time as it (erroneously) expects inflationary pressures to dissipate quickly. A standard linearized formulation of our model cannot account for these observations under identical assumptions. Our nonlinear framework implies that the standard prescription of "looking through" supply shocks is a good policy for small shocks when inflation is near the central bank's target, but that such a policy may be quite risky when economic activity is strong and large shocks drive inflation well above target. Moreover, our model implies that the economic costs of "going the last mile" – i.e. a tight stance aimed at returning inflation quickly to target – can be substantial.
Keywords:
Inflation Dynamics; New Keynesian Model; Inflation Risk; Monetary Policy; Linearized Model; Nonlinear Model; State-Dependent Pricing; cost-push shock; policy rule; COVID inflation surge; Inflation; Inflation targeting; Supply shocks; Central bank policy rate; Labor markets
Cover IMF Staff Country Reports
Republic of Equatorial Guinea: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Republic of Equatorial Guinea
International Monetary Fund. African Dept.
The 2023 Article IV Consultation discusses that Equatorial Guinea’s economy remains confronted with a continuous decline in oil production. The overall fiscal surplus is estimated to have dropped to 0.3 percent of GDP from 13.6 percent in 2022, while the nonhydrocarbon primary fiscal deficit is expected at 23.3 percent of nonhydrocarbon gross domestic product (GDP), up from 22.7 percent of nonhydrocarbon GDP in 2022. Near and medium-term growth prospects appear challenging with the projected reduction in oil production and lacklustre growth in the non-oil economy due to underlying structural weaknesses. Real GDP growth is projected to contract by 5.5 percent in 2024, and the economy would remain on average in recession over the medium term. Fostering nonhydrocarbon growth and inclusion is critical to long-term macroeconomic and social stability.
Keywords:
macroeconomic reform effort; government arrears; Equatoguinean economy; U.S. dollar; government's commitment; IMF's transparency policy; Equatorial Guinea's economy; governance strategy; liability positions vis-à-vis nonresident; External sector statistics; Fiscal stance; Commercial banks; Global
Cover Handbook on Measuring Digital Trade
Handbook on Measuring Digital Trade
Second edition
World Trade Organization
,
Organization for Economic Co-operation and Development
,
International Monetary Fund
, and
United Nations

Abstract

Digital technologies have made it increasingly feasible for buyers and sellers to place and receive orders on a global scale. They also enable the instantaneous remote delivery of services directly into businesses and homes, including internationally. The Handbook on Measuring Digital Trade sets out a conceptual and measurement framework for digital trade that aligns with the broader standards for macroeconomic statistics. It aims to help statistical compilers to address policymakers’ needs for statistical evidence on digital trade. It includes extensive compilation guidance, drawing upon substantive inputs and case studies from both developed and developing economies and covering a variety of survey and non-survey sources. This second edition of the Handbook builds upon the concepts set out in the first edition, published in 2019. Focusing on cross-border digitally ordered goods and services, on digitally delivered services, and on the role played by digital intermediation platforms the Handbook provides a framework and template for the compilation of internationally comparable statistics on digital trade.

Keywords:
Digital trade; digitalization; international trade; digital intermediation platforms; statistics; measurement; trade transaction; delivered trade; trade statistics; ICT-enabled trade; ordered trade; Trade in services; Imports; Exports; Trade in goods; Service exports; Global; Asia and Pacific
Cover IMF Working Papers
The Heterogeneous Effects of U.S. Monetary Policy on Non-Bank Finance
Andrew Hodge
and
Miss Anke Weber
Using flow of funds and high frequency data from the Investment Company Institute, we study the effects of monetary policy shocks on the size of non-bank assets as well as on flows into long-term mutual funds and returns on their assets. Consolidating chains of non-bank intermediation to avoid double counting, we find that contractionary monetary policy shocks shrink the assets of non-banks reliant on long-term funding, while increasing those of nonbanks reliant on short-term funding. Contractionary shocks also cause sustained outflows from long-term mutual funds and reduce their returns. Using a Markov-Switching VAR, we find these effects to be more prevalent after the Global Financial Crisis, and show that monetary policy shocks had the opposite effects in some earlier periods. Policymakers will thus have to contend with a complex and heterogeneous transmission of monetary policy to financial and macroeconomic outcomes through the non-banks.
Keywords:
Non-bank market-based finance; mutual fund performance and flows; monetary policy shocks; monetary policy shock; bank finance; contractionary shock; bank sector; transmission of monetary policy; money market fund; Mutual funds; Commercial banks; Flow of funds; Money markets; Vector autoregression; Global; Europe
Cover IMF Staff Country Reports
Mexico: 2022 Article IV Consultation-Press Release and Staff Report
International Monetary Fund. Western Hemisphere Dept.
Mexico’s economy has recovered more gradually from the pandemic than many peers. Even so, inflation has accelerated and has become more entrenched, as elsewhere. Domestic and external financial conditions tightened in the past year, while near-term growth prospects for the U.S., Mexico’s main trading partner, have weakened. The risks of capital outflows have risen. These new challenges compound Mexico’s long-standing problems of low growth and high inequality.
Keywords:
data ROSC update; headline inflation; inflation surge; liability positions vis-à-vis nonresident; ROSC mission; Inflation; External sector statistics; Government finance statistics; Global; North America
Cover IMF Working Papers
Financial Innovation and Statistical Methodological Guidance—Key Considerations
Mr. Joe Crowley
,
Marco A Espinosa-Vega
,
Elizabeth Holmquist
,
Ken Lamar
,
Emmanuel Manolikakis
,
James McAndrews
, and
Holt Williamson
Financial risks outside of the traditional banking sector can quickly spread throughout financial systems and lead to disruptions in the real economy. A lack of adequately detailed financial sector statistics can obscure buildups of risks from policymakers and hinder their ability to effectively respond once these risks materialize. In response, authorities worldwide, international organizations, including the IMF, and the Group of 20 (G-20), called for financial reforms and launched efforts to gather information on nonbank financial intermediary (NBFI) activities—including the Data Gaps Initiative (DGI) and enhanced Financial Stability Board (FSB) NBFI data collection. While these initiatives represent significant strides to strengthen NBFI’s data collection, there continue to be gaps in the conceptual and methodological guidance in the financial and macroeconomic statistics manuals on which the FSB, DGI, and national authorities rely; gaps that are increasing in light of increased globalization and the financial sector digitalization. This paper proposes conceptual guidance to help bridge existing and emerging gaps.
Keywords:
Non Bank Financial Intermediation; Market-Based Finance; System of National Accounts; Crypto Assets; NBFI taxonomy; NBFI data collection; enhanced Financial Stability Board; information on nonbank financial intermediary; Non-Bank Payment Service Providers; Virtual currencies; Nonbank financial institutions; Commercial banks; Fintech; Global
Cover IMF Working Papers
Monetary Policy and COVID-19
Michal Brzoza-Brzezina
,
Marcin Kolasa
, and
Krzysztof Makarski
We study the macroeconomic effects of the COVID-19 epidemic in a quantitative dynamic general equilibrium setup with nominal rigidities. We evaluate various containment policies and show that they allow to dramatically reduce the welfare cost of the disease. Then we investigate the role that monetary policy, in its capacity to manage aggregate demand, should play during the epidemic. According to our results, treating the observed output contraction as a standard recession leads to overly expansionary policy. Finally, we check how central banks should resolve the trade-off between stabilizing the economy and containing the epidemic. If no administrative restrictions are in place, the second motive prevails and, despite the deep recession, optimal monetary policy is in fact contractionary. Conversely, if sufficient containment measures are introduced, central bank interventions should be expansionary and help stabilize economic activity.
Keywords:
COVID-19; Epidemics; Containment measures; Monetary policy; containment policy; containment measure; optimal monetary policy; epidemic model; monetary policy stance; Consumption; Economic recession; Inflation
Cover IMF Staff Country Reports
Democratic Republic of São Tomé and Príncipe: Third Review Under the Extended Credit Facility Arrangement and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director
International Monetary Fund. African Dept.
São Tomé and Príncipe has maintained macroeconomic stability in the period since the previous ECF review (February 2021). International support and the authorities’ swift actions helped mitigate the impact of the pandemic so far. Growth is estimated at 3 percent in 2020, supported by externally-financed spending. Growth is projected to slow to 2 percent in 2021, reflecting delays in the return of tourists, and to strengthen to 3 percent in 2022. The economic outlook is subject to high uncertainty and downside risks, notably the evolution of the pandemic.
Keywords:
VAT collection; staff statement; staff appraisal; IT system; authorities of Sao Tome and Principe; International reserves; Debt sustainability; Global; Sub-Saharan Africa; West Africa
Cover IMF Staff Country Reports
Democratic Republic of São Tomé and Príncipe: Third Review Under the Extended Credit Facility Arrangement and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director
International Monetary Fund. African Dept.
São Tomé and Príncipe has maintained macroeconomic stability in the period since the previous ECF review (February 2021). International support and the authorities’ swift actions helped mitigate the impact of the pandemic so far. Growth is estimated at 3 percent in 2020, supported by externally-financed spending. Growth is projected to slow to 2 percent in 2021, reflecting delays in the return of tourists, and to strengthen to 3 percent in 2022. The economic outlook is subject to high uncertainty and downside risks, notably the evolution of the pandemic.
Keywords:
VAT collection; staff statement; staff appraisal; IT system; authorities of Sao Tome and Principe; International reserves; Debt sustainability; Global; Sub-Saharan Africa; West Africa
Cover IMF Staff Country Reports
Turkey: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Turkey
International Monetary Fund. European Dept.
In Turkey, as in other countries, the human and economic toll of the COVID-19 pandemic has been severe. Thousands of lives have been tragically lost and many livelihoods compromised. The initial policy response to the pandemic—and subsequent sharp growth rebound—set Turkey apart from its peers. Rapid monetary and credit expansion and large liquidity support meant that Turkey was among the few countries to experience positive economic growth in 2020. But these policies also aggravated pre-existing economic and financial vulnerabilities. Higher inflation, increased dollarization, and a large shift in the current account position increased pressure on the lira and gave rise to heavy foreign exchange sales, which led in turn to steep reserve declines from already-low levels. A policy shift in late 2020—mainly towards tighter and more transparent monetary policy and slower credit growth—was both welcome and necessary. But the durability and depth of the shift were called into question in March 2021, following the change in central bank leadership, as the lira weakened markedly and interest rate spreads widened.
Keywords:
credit policy; fiscal policy coordination; IFC portfolio implementation; FX rediscount credit repayment; IMF staff calculation; policy uncertainty; COVID-19; State-owned banks; Inflation; Global; Europe