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Business and Economics > Public Finance

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Cover IMF Working Papers
Evaluating Historical Episodes using Shock Decompositions in the DSGE Model
Zamid Aligishiev
,
Michael Ben-Gad
, and
Joseph Pearlman
We present alternative methods for calculating and interpreting the influence of exogenous shocks on historical episodes within the context of DSGE models. We show analytically why different methods for calculating shock decompositions can generate conflicting interpretations of the same historical episodes. We illustrate this point using an extended version of Drautzburg and Uhlig’s (2015) model of the U.S. economy, focusing on the periods 1964–1966, 1979–1987, 2006–2009, 2016–2020 and 2020–2023. We argue that the best method for analyzing particular episodes is one which isolates the influence of the shocks during the period under consideration and where the initial conditions represent the system’s distance from balanced growth path at the beginning of the episode.
Keywords:
DSGE model; Shock Decomposition; Financial Frictions; Fiscal Policy; copyright page; influence of the shock; monetary policy shock; differencing method; decomposition method; Sovereign bonds; Central bank policy rate; Private investment; Public investment spending; Global
Cover Selected Issues Papers
Financial Conditions and Their Growth Implications for Qatar
Dorothy Nampewo
This paper develops a Financial Conditions Index (FCI) for Qatar and uses the Growth-at-Risk (GaR) framework to examine the impact of financial conditions on Qatar’s non-hydrocarbon growth. The analysis shows that the FCI is an important leading indicator of Qatar’s non-hydrocarbon growth, highlighting its predictive potential for future economic performance. The GaR framework suggests that overall, the current downside risks to Qatar’s baseline non-hydrocarbon growth projections are relatively mild.
Keywords:
Financial conditions; non-hydrocarbon growth; Qatar; GaR framework; growth projection; Qatar's baseline; copyright page; financial conditions indicator; Financial conditions index; Oil prices; Central bank policy rate; Deposit rates; Post-clearance customs audit; Global
Cover IMF Staff Country Reports
Samoa: Selected Issues
International Monetary Fund. Asia and Pacific Dept
2024 Selected Issues
Keywords:
money transfer operator; sectoral risk assessment; Australia labour mobility; transaction report; remittance corridor; risk remittance product; Remittances; Anti-money laundering and combating the financing of terrorism (AML/CFT); Medium taxpayer office; Correspondent banking; Financial sector; Australia and New Zealand; Pacific Islands; Global
Cover Technical Notes and Manuals
Developing a Risk-Based Compliance Improvement Plan for Customs Administrations
Augusto Azael Pérez Azcárraga
,
José M García-Sanjinés
,
Rossana A San Juan
,
Selvin A Lemus
,
Philip R Wood
, and
Robert Kokoli
This technical note offers practical guidance to senior managers and technical staff in Customs administrations for developing a Compliance Improvement Plan (CIP) using an Integrated Risk Management (IRM) approach. It clearly outlines the components of a CIP based on IRM, explains what it entails for a Customs administration, and how to develop it step-by-step. Additionally, it underscores the importance of identifying and implementing tailored treatment measures for various trader segments, which is crucial for enhancing compliance levels. Furthermore, it emphasizes the need to identify key vulnerabilities within processes that may lead to the realization of risks, proposing appropriate strategies to address them. The note also highlights other critical factors that must be considered to ensure the effective implementation of a CIP.
Keywords:
Customs Administrations; risk management; integrated risk management; transactional risk management; customs compliance; compliance improvement plan; trade facilitation; segmentation; treatment measures; compliance indicators; compliance risks; institutional risk; governance; core customs processes; global risk index; core Customs process; IRM approach mean; risk management committee; compliance risk; views ofthe IMF; Customs administration core functions; Interest rate parity; Compliance improvement plans; Value-added tax; Global
Cover IMF Working Papers
Central Bank Digital Currencies and Financial Stability: Balance Sheet Analysis and Policy Choices
Romain Bouis
,
Gaston Gelos
,
Fumitaka Nakamura
,
Paavo A Miettinen
,
Erlend Nier
, and
Gabriel Soderberg
This paper offers a comprehensive analysis of the implications for financial stability of a central bank issuing a digital currency to the public at large. We start with a systematic analysis of balance sheet changes that arise from the new liability for the central bank and the banking system, and examine how they depend on preconditions, central bank choices, and banking system responses. Based on this, we discuss the range of implications for financial stability that may arise in steady state, in the context of adoption, and in crisis times. Threats to financial intermediation in steady state arise mainly in situations where the central bank balance sheet expands, and triggers adjustment mechanisms that lead to more costly or less stable funding of the banking system, while in crisis times run risk may increase. Our analysis of policy choices to control these effects considers macroprudential policy, and an expansion of central bank lending to commercial banks, but finds that a main contribution needs to come from a design of the CBDC that encourages its use as a means of payment rather than a store of value.
Keywords:
Central Bank Digital Currency; Financial Stability; Balance Sheets; Disintermediation; Bank Runs; central bank lending; CBDC issuance scenario; market operation; central bank choice; lending to commercial banks; Central Bank digital currencies; Commercial banks; Financial sector stability; Bank credit; Bank deposits; Global; Eastern Europe; Caribbean
Cover IMF Working Papers
Chinese Banks and Their EMDE Borrowers: Have Their Relationships Changed in Times of Geoeconomic Fragmentation?
Catherine Casanova
,
Eugenio M Cerutti
, and
Swapan-Kumar Pradhan
While Chinese banks have become the top cross-border lender to EMDEs, their expansion has slowed recently, both in terms of volume and market share. Also, the strong correlation of China’s bilateral trade and its banks’ cross-border lending has weakened, while during 2020-22 lending became more positively correlated with FDI. In our paper, we analyse these patterns and we explore the role of borrower risk variables and foreign policies. Our findings show that, although the shifting correlation from trade to FDI is a general EMDE phenomenon, China’s Belt and Road Initiative reinforces it. By contrast, borrowers that potentially benefit from geoeconomic fragmentation do not display stronger FDI-lending relationships. We also find that Chinese banks exhibit different levels of risk tolerance relative to other bank nationalities as borrower country risk variables are positively correlated with Chinese banks’ market shares, but not with their amounts of cross-border lending.
Keywords:
ross-border lending; Chinese banks; Trade; FDI; Borrower indebtedness; Pandemic; Sanctions; Geoeconomic fragmentation; cross-border lending; borrower country risk variable; FDI-lending relationship; EMDE borrower; borrower characteristic; Chinese bank; CN bank; Bank credit; Cross-border banking; Foreign direct investment; Global
Cover IMF Staff Country Reports
Norway: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Norway
International Monetary Fund. European Dept.
The 2024 Article IV Consultation discusses that boosting labor supply, containing public expenditure pressures, and raising productivity will be required for Norway to be able to continue its strong economic performance and preserve its welfare model. A recent White Paper by the Ministry of Finance rightly raises these key issues facing Norway’s economy in the longer term. Real gross domestic product growth slowed in 2023 and is expected to gradually rebound in the near term as private domestic demand strengthens supported by higher real incomes. Tight macroprudential policies should remain in place to mitigate systemic vulnerabilities. The financial system appears resilient and banking system buffers are strong. Long-term fiscal challenges should be more forcefully addressed. Norway has the largest proportion of the population on disability-related benefits among the organisation for economic co-operation and development countries, and reforming costly and distortionary social benefit systems is possibly the most important and politically difficult reform pending. Although Norway boasts one of the highest levels of labor productivity among its peers, it has slowed faster than in other countries. To reverse this trend, conditions should be improved to facilitate sectoral reallocation as well as innovation and technology adoption.
Keywords:
inflation expectation; holdings of SDR; monetary policy stance; inflation pressure; consumer price inflation; Inflation; Labor markets; Central bank policy rate; Global
Cover IMF Working Papers
Fiscal R-Star: Fiscal-Monetary Tensions and Implications for Policy
Marijn A. Bolhuis
,
Jakree Koosakul
, and
Neil Shenai
Since the Global Financial Crisis, fiscal policy in advanced economies has become more “active” – that is, increasingly unresponsive to rising debt levels. This paper explores tensions between active fiscal and monetary policies by introducing the concept of “fiscal r-star,” which is the real interest rate required to stabilize debt levels when the primary balance is set exogenously, output is growing at potential, and inflation is at target. It is proposed that the difference between monetary r-star and fiscal r-star—referred to as the “fiscal monetary gap”—is a proxy for fiscal-monetary policy tensions. An analysis of over 140 years of data from 16 advanced economies shows that larger fiscal-monetary gaps are associated with rising debt levels, higher inflation, financial repression, lower real returns on bonds and cash, with elevated risks of future debt, inflation, currency, housing, and systemic crises. Current estimates indicate that fiscal-monetary tensions are at historic highs. Given the tepid growth outlook, growth-enhancing reforms and fiscal consolidation, among other policy adjustments, may be needed to attenuate fiscal-monetary tensions over time.
Keywords:
Fiscal r-star; fiscal-monetary gap; fiscal-monetary interactions; fiscal dominance; inflation; fiscal consolidation; monetary policy; fiscal policy; policy space; financial repression; debt liquidation; fiscal-monetary policy tension; debt level; fiscal policy to debt; IMF working paper 24/174; Fiscal stance; Real interest rates; Inflation targeting; Global
Cover IMF Staff Country Reports
Guatemala: 2024 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. Western Hemisphere Dept.
The 2024 Article IV Consultation discusses that Guatemala has continued to maintain its solid track record of macroeconomic policies, with economic growth moderating to an estimated 3.5 percent in 2023 and consumer price index inflation and inflationary pressures decelerating from a 9.9 percent peak year-on-year in February 2023 to 3.6 percent in June 2024, within the monetary policy target. The Guatemalan economy continues to show stability and soundness thanks to a legacy of prudent monetary and fiscal policies. The country's outlook remains favorable, with risks skewed to the downside. With hefty investment needs, Guatemala will need to boost revenue while bolstering the quantity and quality of spending. Higher growth and absorption of capital flows into the country requires gradual strengthening of the monetary and exchange rate policy frameworks. An inclusive and sound financial sector guided by prudential principles should further support Guatemala’s economic development efforts.
Keywords:
FX participation rule band; FX intervention; reference exchange rate; financial institutions buy; reform agenda; Anti-money laundering and combating the financing of terrorism (AML/CFT); Central bank policy rate; Tax collection; Global; Central America; Caribbean
Cover IMF Working Papers
Policy Multipliers in Japan Under QQE
Sam Ouliaris
and
Celine Rochon
This paper tests whether Japan's key macro policy multipliers have declined since 2013, the year that Japan introduced Qualitative and Quantitative Easing. We use the augmented Blanchard-Perotti structural VAR model introduced in Ouliaris and Rochon (2021) to study the dynamic effects of shocks in the central bank’s asset holdings, interest rates, and debt levels relative to GDP on economic activity in Japan. We find that both the expenditure and tax multipliers of Japan have fallen, implying that the effectiveness of fiscal policy in Japan declined following the change in monetary policy. Moreover, we find that the efficacy of quantitative easing is small, implying the need for huge interventions to have a significant effect on real GDP, and that the effectiveness of quantitative easing has declined since 2013. We argue that the reduction in policy multipliers can be attributed to the upward trend in the government debt level relative to GDP which, despite historically low interest rates, has increased Japan’s structural deficit, and the likelihood of reduced expenditures and higher taxes going forward.
Keywords:
fiscal multipliers; structural VAR; policy multiplier; debt multiplier; tax multiplier; effectiveness of quantitative easing; QQE multiplier; Tax expenditures; Real interest rates; Central bank balance sheet