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Business and Economics > Banks and Banking

You are looking at 1 - 10 of 67 items for :

  • Type: Journal Issue x
  • Agriculture: Aggregate Supply and Demand Analysis; Prices x
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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 Working Papers
The Nexus of Climate and Monetary Policy: Evidence from the Middle East and Central Asia
Nordine Abidi
,
Mehdi El Herradi
,
Boriana Yontcheva
, and
Ananta Dua
This paper investigates the effects of climate shocks on inflation and monetary policy in the Middle East and Central Asia (ME&CA) region. We first introduce a theoretical model to understand the impact of climate risks on headline and food inflation. In particular, the model shows how climate shocks could affect the path of policy rates through food prices. We then use local projections to estimate the impact of climate shocks on headline and food inflation. The results show that price stability is more easily achievable under positive climate conditions. Overall, our findings shed new light on the importance of considering climate-related supply shocks when designing monetary policy, particularly in countries where food makes up a significant part of the CPI-basket.
Keywords:
Monetary policy; inflation; climate change; food inflation; monetary policy in the Middle East and Central Asia; IMF working paper 24/90; monetary policy shock; food price; Food prices; Central bank policy rate; Consumer price indexes; Middle East and Central Asia; Global
Cover Selected Issues Papers
Domestic and External Drivers of Inflation: The Gambia
Jean-Claude Nachega
,
Glen Kwende
,
Laurent Kemoe
, and
Fidel A Márquez Barroeta
This paper investigates the drivers of headline inflation and the degree of exchange rate passthrough (ERPT) in The Gambia over the period 2014-2023. The analysis highlights the decisive long-term roles of global prices of commodities (food, oil and fertilizer), the exchange rate, and the domestic output gap. The short-run dynamics of inflation points to the roles of global food price and the second-round effects of changes in food prices and the output gap. Monetary policy has the potential to tame inflation in the short run provided the monetary policy rate is adjusted rapidly and boldly. Lastly, there is evidence of an asymmetric ERPT to domestic prices, and the size of currency depreciation matters for inflation dynamics.
Keywords:
Inflation; monetary policy rate; oil prices; food prices; fertilizer prices; exchange rates; inflation dynamics; inflation point; drivers of inflation; points to the role; Output gap; Central bank policy rate; Global
Cover Regional Economic Outlook, Sub-Saharan Africa, October 2023
Regional Economic Outlook, Sub-Saharan Africa, October 2023
Light on the Horizon?
International Monetary Fund. African Dept.

Abstract

Still emerging from the COVID-19 pandemic, countries in sub-Saharan Africa have been hit by a sluggish global economy, worldwide inflation, high borrowing costs, and a cost-of-living crisis. In many cases, inflation is still too high, borrowing costs are still elevated, exchange-rate pressures persist, and political instability is an ongoing concern. To ensure that the coming rebound is more than just a transitory glimpse of sunshine, it is important for authorities to guard against a premature relaxation of stabilization policies, while also focusing on reforms to both claw back lost ground from the four-year crisis and also to create new space to address the region’s pressing development needs.

Keywords:
economic conditions; economic forecasting; Africa economic development; economic policy; sub-Saharan Africa; inflation expectation; inflation-depreciation spiral; funding squeeze; food price inflation; IMF financing arrangement; consumption basket; sub-Saharan Africa face; inflation fall; Inflation; Exchange rates; Food prices; Central bank policy rate; Government debt management; Global
Cover IMF Working Papers
Global Supply Chain Disruptions: Challenges for Inflation and Monetary Policy in Sub-Saharan Africa
Zo Andriantomanga
,
Marijn A. Bolhuis
, and
Shushanik Hakobyan
The Covid-19 pandemic has led to a large disruption of global supply chains. This paper studies the implications of supply chain disruptions for inflation and monetary policy in sub-Saharan Africa. Increases in supply chain pressures have had a sizeable impact on headline, food, and tradable inflation for a panel of 29 sub-Saharan African countries from 2000 to 2022. Our findings suggest that central banks can stabilize inflation and output more efficiently by monitoring global supply chains and adjusting the monetary policy stance before the disruptions have fully passed through into all inflation components. The gains from monitoring supply chain disruptions are particularly large for open economies which tend to experience outsized second-round effects on the prices of non-tradable goods and services.
Keywords:
Inflation; global supply chains; sub-Saharan Africa; shipping costs; monetary policy; core inflation; food prices; oil price; monetary policy stance; inflation in sub-Saharan Africa; monetary policy in sub-Saharan Africa; inflation component; GSCPI shocks to inflation; Supply shocks; Oil prices; Central bank policy rate; Global
Cover IMF Working Papers
Understanding Post-COVID Inflation Dynamics
Martin Harding
,
Jesper Lindé
, and
Mathias Trabandt
We propose a macroeconomic model with a nonlinear Phillips curve that has a flat slope when inflationary pressures are subdued and steepens when inflationary pressures are elevated. The nonlinear Phillips curve in our model arises due to a quasi-kinked demand schedule for goods produced by firms. Our model can jointly account for the modest decline in inflation during the Great Recession and the surge in inflation during the Post-Covid period. Because our model implies a stronger transmission of shocks when inflation is high, it generates conditional heteroskedasticity in inflation and inflation risk. Hence, our model can generate more sizeable inflation surges due to cost-push and demand shocks than a standard linearized model. Finally, our model implies that the central bank faces a more severe trade-off between inflation and output stabilization when inflation is high.
Keywords:
Inflation dynamics; inflation risk; monetary policy; linearized model; nonlinear model; real rigidities; cost-push shock; nonlinear Phillips curve; inflation-output gap trade-off; Inflation; Output gap; Central bank policy rate; Demand elasticity; Interest rate floor; Global
Cover IMF Working Papers
Biases in Survey Inflation Expectations: Evidence from the Euro Area
Mr. Jiaqian Chen
,
Lucyna Gornicka
, and
Vaclav Zdarek
This paper documents five facts about inflation expectations in the euro area. First, individual inflation forecasts overreact to individual news. Second, the cross-section average of individual forecasts of inflation underreact to shocks initially, but overreacts in the medium term. Third, disagreement about future inflation increases in response to news when the current inflation is high, and declines when inflation is low, consistent with a zero lower bound of expectations. Fourth, overreaction of individual inflation forecasts to news increased after the global financial crisis (GFC). Fifth, the reaction of average expectations (and of actual inflation) to shocks became more muted post-GFC in the euro area, but not in the U.S.
Keywords:
expectations formation; surveys of expectations; informational rigidities; inflation expectation; survey inflation expectation; responses of inflation expectation; forecasts of inflation; Inflation; Zero lower bound; Oil production; Supply shocks; Global
Cover IMF Working Papers
Natural Gas in Europe: The Potential Impact of Disruptions to Supply
Gabriel Di Bella
,
Mr. Mark J Flanagan
,
Karim Foda
,
Svitlana Maslova
,
Alex Pienkowski
,
Martin Stuermer
, and
Mr. Frederik G Toscani
This paper analyzes the implications of disruptions in Russian gas for Europe’s balances and economic output. Alternative sources could replace up to 70 percent of Russian gas, allowing Europe to avoid shortages during a temporary disruption of around 6 months. However, a longer full shut-off of Russian gas to the whole of Europe would likely interact with infrastructure bottlenecks to produce very high prices and significant shortages in some countries, with parts of Central and Eastern Europe most vulnerable. With natural gas an important input in production, the capacity of the economy would shrink. Our findings suggest that in the short term, the most vulnerable countries in Central and Eastern Europe — Hungary, Slovak Republic and Czechia — face a risk of shortages of as much as 40 percent of gas consumption and of gross domestic product shrinking by up to 6 percent. The effects on Austria, Germany and Italy would also be significant, but would depend on the exact nature of remaining bottlenecks at the time of the shutoff and consequently the ability of the market to adjust. Many other countries are unlikely to face such constraints and the impact on GDP would be moderate—possibly under 1 percent. Immediate policy priorities center on actions to mitigate impacts, including to eliminate constraints to a more integrated gas market via easing infrastructure bottlenecks, to accelerate efforts in defining and agreeing solidarity contributions, and to promote stronger pricing pass through and other measures to generate greater energy savings. National responses and RePowerEU contains many important measures to help address these challenges, but immediate coordinated action is called for, with specific opportunities in each of these areas.
Keywords:
Energy supply; natural gas; production output; EU gas import capacity; infrastructure bottleneck; supply shut-off; LNG market; output effect; Natural gas sector; Imports; Consumption; Supply shocks; Operational risk; Europe; Global; Central and Eastern Europe; energy shut-off; natural gas in Europe
Cover IMF Working Papers
Quarterly Projection Model for the National Bank of Rwanda
Mr. Jan Vlcek
and
Mikhail Pranovich
National Bank of Rwanda (BNR) modernized monetary policy and transited to the price-based policy framework in January 2019. The Forecasting and Policy Analysis System (FPAS) is the cornerstone for the new forward-looking framework, which mobilizes and organizes resources and sets processes for regular forecasting rounds. The core of this system is a structural macroeconomic model for macroeconomic analysis and projections to support the BNR staff’s policy recommendations to the monetary policy committee. This paper documents the quarterly projection model (QPM) at the core of the FPAS at the BNR. The model is an extension of the canonical structure in Berg et al (2006) to reflect specifics of the interest-rate-based policy framework with a managed exchange rate, the effect of agricultural sector and harvests on prices, and the role of fiscal policies and aid flows.
Keywords:
Rwanda; Forecasting and Policy Analysis; Quarterly Projection Model; Monetary Policy; Managed Exchange Rate; Fiscal Impulse; Aid; WP; food price inflation; central bank; floating exchange rate; money market; nominal exchange rate depreciation; headline inflation; depreciation target; depreciation rate; demand shock; transmission mechanism; energy price inflation; inflation deviation; food inflation; real world oil price gap; price gap; Inflation; Food prices; Agricultural production; Exchange rates; Central bank policy rate; Global
Cover IMF Working Papers
Credit Supply and Productivity Growth
Francesco Manaresi
and
Mr. Nicola Pierri
We study the impact of bank credit on firm productivity. We exploit a matched firm-bank database covering all the credit relationships of Italian corporations, together with a natural experiment, to measure idiosyncratic supply-side shocks to credit availability and to estimate a production model augmented with financial frictions. We find that a contraction in credit supply causes a reduction of firm TFP growth and also harms IT-adoption, innovation, exporting, and adoption of superior management practices, while a credit expansion has limited impact. Quantitatively, the credit contraction between 2007 and 2009 accounts for about a quarter of observed the decline in TFP.
Keywords:
WP; supply shock; credit supply; interbank market; capital stock; Productivity; Export; Management; IT adoption; productivity dynamics; firm TFP; credit crunch; borrowing firm; policy function; input acquisition; relation characteristic; firm information; firm balance-sheets; output price; productivity effect; Credit; Supply shocks; Bank credit; Interbank markets