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Business and Economics > Production and Operations Management

You are looking at 1 - 9 of 9 items for :

  • Type: Journal Issue x
  • General Aggregative Models: Keynes; Keynesian; Post-Keynesian x
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Cover IMF Working Papers
A New Strategy for Korea’s Fiscal Policy in a Low Growth Environment
Ms. Edda Zoli
,
Hou Wang
, and
Mr. Douglas Laxton
Adverse demographics and other structural weaknesses impinge on Korea’s long-term fiscal outlook and potential growth. Moreover, inadequate social protection is creating poverty and dampening consumption. The paper presents projections of Korea’s fiscal outlook, using new estimates of potential growth obtained with a novel multivariate filter. It shows that keeping fiscal revenues-to-GDP constant would result in an explosive public debt dynamic in the long term. Then, through simulations of the Flexible System of Global Models, the paper analyzes policies to preserve fiscal sustainability, while boosting potential growth and social protection. It concludes that with greater revenue mobilization, Korea can stabilize debt-to-GDP well below “dangerous” levels. Policies to address Korea’s challenges include higher targeted transfers to the most vulnerable and fiscal measures to support female labor force participation and employment, accompanied by product and labor market reforms.
Keywords:
WP; GDP; product market; labor market; deficit; aging; long-term fiscal sustainability; structural reforms; potential output; product market distortion; yield productivity gain; production function; GDP ratio; Korea's productivity catch-up; Korea's total factor productivity; product market regulation; Productivity; Global
Cover IMF Working Papers
Optimism, Pessimism, and Short-Term Fluctuations
Gabriel Di Bella
and
Mr. Francesco Grigoli
Economic theory offers several explanations as to why shifting expectations about future economic activity affect current demand. Abstracting from whether changes in expectations originate from swings in beliefs or fundamentals, we test empirically whether more optimistic or pessimistic potential output forecasts trigger short-term fluctuations in private consumption and investment. Relying on a dataset of actual data and forecasts for 89 countries over the 1990-2022 period, we find that private economic agents learn from different sources of in- formation about future potential output growth, and adjust their current demand accordingly over the two years following the shock in expectations. To provide a theoretical foundation to the empirical analysis, we also propose a simple Keynesian model that highlights the role of expectations about long-term output in determining short-term economic activity.
Keywords:
WP; economic activity; effective demand; price level; terms of trade; Animal spirits; expectations; fluctuations; optimism; pessimism; self-fulfilling; investment growth; utility function; consumption deflator; marginal utility; consumption growth; frequency distribution; growth equation; productivity decreases investment; money hoarding; Private consumption; Production growth; Consumption; Potential output; Private investment; Global
Cover IMF Working Papers
The Algebraic Galaxy of Simple Macroeconomic Models: A Hitchhiker’s Guide
Mr. Evan C Tanner
Simple macroeconomic frameworks like the IS/LM have survived because they help us conceptualize complex problems while also providing ‘back of the envelope’ estimates of macroeconomic outcomes. Herein, a bare-bones New Keynesian extension of the IS/LM model yields solutions for core macro variables (output gap, inflation, interest rate, real exchange rate misvaluation)—expressed in percent. We then extend that standard model to also generate a corresponding set of demand-side elements—expressed in currency units. A key aim of the paper is to reconcile these two metrics in ways that also aid communication and intuition—including through IS/LM-style graphs.
Keywords:
WP; exchange rate
Cover IMF Working Papers
Quarterly Projection Model for India: Key Elements and Properties
Mr. Jaromir Benes
,
Kevin Clinton
,
Asish George
,
Pranav Gupta
,
Joice John
,
Mr. Ondrej Kamenik
,
Mr. Douglas Laxton
,
Pratik Mitra
,
G.V. Nadhanael
,
Mr. Rafael A Portillo
,
Hou Wang
, and
Fan Zhang
This paper outlines the key features of the production version of the quarterly projection model (QPM), which is a forward-looking open-economy gap model, calibrated to represent the Indian case, for generating forecasts and risk assessment as well as conducting policy analysis. QPM incorporates several India-specific features like the importance of the agricultural sector and food prices in the inflation process; features of monetary policy transmission and implications of an endogenous credibility process for monetary policy formulation. The paper also describes key properties and historical decompositions of some important macroeconomic variables.
Keywords:
WP; core inflation; interest rate; monetary policy; inflation targeting; Reserve Bank of India; inflation episodes in India; forecasting models; monetary policy models; model calibration; monetary policy rules; monetary policy simulations; food inflation; inflation expectation; reaction function; inflation target; transmission mechanism; Inflation; Output gap; Central bank policy rate; Food prices; Global
Cover IMF Working Papers
Inflation-Forecast Targeting for India: An Outline of the Analytical Framework
Mr. Jaromir Benes
,
Kevin Clinton
,
Asish George
,
Joice John
,
Mr. Ondrej Kamenik
,
Mr. Douglas Laxton
,
Pratik Mitra
,
G.V. Nadhanael
,
Hou Wang
, and
Fan Zhang
India formally adopted flexible inflation targeting (FIT) in June 2016 to place price stability, defined in terms of a target CPI inflation, as the primary objective of monetary policy. In this context, the paper draws on Indian macroeconomic developments since 2000 and the experience of other countries that adopted FIT to bring out insights on how credible policy with an emphasis on a strong nominal anchor can reduce the impact of supply shocks and improve macroeconomic stability. For illustrating the key issues given the unique structural characteristics of India and the policy options under an FIT framework, the paper describes an analytical framework using the core quarterly projection model (QPM). Simulations of the QPM are carried out to illustrate the monetary policy responses under different types of uncertainty and to bring out the importance of gaining credibility for improving monetary policy efficacy.
Keywords:
WP; monetary policy; interest rate; central bank; exchange rate; inflation targeting; Reserve Bank of India; inflation episodes in India; forecasting models; monetary policy models; model calibration; monetary policy rules; monetary policy simulations; inflation expectation; output-inflation trade-off; transmission mechanism; inflation process; asset price inflation; inflation outcome; food inflation; inflation spiral; inflation condition; monetary policy credibility; inflation glide path; a number of monetary policy instrument; Inflation; Central bank policy rate; Output gap; Supply shocks; Global
Cover IMF Working Papers
Spillovers from China onto Sub-Saharan Africa: Insights from the Flexible System of Global Models (FSGM)
Mr. Derek Anderson
,
Mr. Jorge I Canales Kriljenko
,
Mr. Paulo Drummond
,
Pedro Espaillat
, and
Mr. Dirk V Muir
What is the impact of economic spillovers from China on sub-Saharan Africa (SSA)? This is an increasingly important question because of China’s growing economic role as a partner of SSA countriesfor both trade and the buildup of infrastructure in the region. The impact of spillovers from China has been an open question because of the challenge to use an internally consistent framework with solid economic foundations that accounts for both the direct impact China may have on individual countries in SSA through a variety of channels (trade, investment, financial) as well as the impact on the region through the global economy (economic activity and commodity prices). This paper explores those channels of transmission and provides illustrative order of magnitude for the short- and medium-term economic impact by using AFRMOD, a module of the Flexible System of Global Models (FSGM), a multicountry general equilibrium model developed at the IMF. Three alternative scenarios are considered: first, lower potential output in China that is originally misperceived as a temporary cyclical slowdown; second, structural reforms in China that aim to increase potential output; and third, a relocation of low-end manufacturing to sub-Saharan Africa.
Keywords:
WP; exchange rate; economic activity; monetary policy; commodity exporter; commodity importer; Spillovers; general equilibrium models; macroeconomic interdepedence; China; Africa; relocation scenario; China-SSA trade; productivity-enhancing reform; Exports; Potential output; Commodity prices; Imports; Sub-Saharan Africa; Global
Cover IMF Working Papers
Measuring External Risks for Peru: Insights from a Macroeconomic Model for a Small Open and Partially Dollarized Economy
Mr. Fei Han
This paper quantifies the effects of external risks for Peru, with particular attention to two major external risks, China’s investment slowdown and the U.S. monetary policy tightening. In particular, a macroeconomic model for a small open and partially dollarized economy is developed and estimated for Peru to measure the risk spillovers, and simulate domestic macroeconomic responses in different scenarios with these two external risks. The simulation results suggest that Peru’s output is vulnerable to both risks, particularly the U.S. monetary policy tightening. Simulations also highlight the importance of higher exchange rate flexiblity and a lower degree of dollarization, which could help mitigate the negative spillover effects of these external risks.
Keywords:
WP; interest rate; exchange rate; monetary policy; Macroeconomic Model; Partial Dollarization; External Risk; Spillovers; Macroeconomic Forecast; China scenario; investment slowdown; copper export; U.S. dollar; Peru's output gap; mineral imports; federal funds rate; terms-of-trade gap; macroeconomic response; World metal price inflation; Output gap; Exchange rates; Exchange rate flexibility; Inflation; Metal prices; Global
Cover IMF Working Papers
Output Gap in Presence of Financial Frictions and Monetary Policy Trade-offs
Francesco Furlanetto
,
Paolo Gelain
, and
Marzie Taheri Sanjani
The recent global financial crisis illustrates that financial frictions are a significant source of volatility in the economy. This paper investigates monetary policy stabilization in an environment where financial frictions are a relevant source of macroeconomic fluctuation. We derive a measure of output gap that accounts for frictions in financial market. Furthermore we illustrate that, in the presence of financial frictions, a benevolent central bank faces a substantial trade-off between nominal and real stabilization; optimal monetary policy significantly reduces fluctuations in price and wage inflations but fails to alleviate the output gap volatility. This suggests a role for macroprudential policies.
Keywords:
WP; monetary policy; Financial Frictions; Potential output; Optimal Monetary Policy; Output Gap; output gap stabilization; computing output gap; wage inflation; mark-up shock; asset price inflation; efficient frontier; output gap dynamics; monetary policy authority; implied output gaps; output gap in presence; inflation target shock; monetary policy shock; Wages; Inflation
Cover IMF Working Papers
Household Production, Services and Monetary Policy
Mr. Constant A Lonkeng Ngouana
A distinctive feature of market-provided services is that some of them have close substitutes at home. Households may therefore switch between consuming home and market services in response to changes in the real wage - the opportunity cost of working at home - and changes in the price of market services. In order to analyze and quantify the implications of this trade-off for monetary policy, I embed a household sector into an otherwise standard sticky price DSGE model, which I calibrate to the U.S. economy. The results of the model are twofold. At the sectoral level, household production augments the service sector's New Keynesian Phillips curve with a sizable extra component that co-moves negatively with the output gap term, lowering the incentive of service sector firms to change their prices. This mechanism endogenously amplifies the real effects of a monetary shock in that sector, unlike in the nondurable goods sector for which households cannot manufacture substitutes at home. At the aggregate level, household production also implies more sluggish prices and a stronger response of real macroeconomic variables to a monetary shock. Some empirical support for this theory is provided.
Keywords:
WP; service sector; monetary policy; Consumer services; DSGE model; Household production; Monetary shock; Nondurable goods; New Keynesian Phillips curve; marginal utility; service sector firm; nominal interest rate; market-service sectors; Services sector; Sticky prices; Consumption; Output gap