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Business and Economics > Production and Operations Management

You are looking at 1 - 10 of 43 items for :

  • Type: Journal Issue x
  • Central Banks and Their Policies x
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Cover IMF Working Papers
The Consequences of Falling Behind the Curve: Inflation Shocks and Policy Delays Under Rational and Behavioral Expectations
Mai Hakamada
and
Carl E. Walsh
Central banks in major industrialized economies were slow to react to the surge in inflation that began in early 2021. The proximate causes of this surge were the supply chain disruptions associated with the easing of COVID restrictions, fiscal policies designed to cushion the economic impact of COVID, and the impact on commodity prices and supply chains of the war in Ukraine. We investigate the consequences of policy delay in responding to inflation shocks. First, using a simple three-period model, we show how policy delay worsens inflation outcomes, but can mitigate or even reverse the output decline that occurs when policy responds without delay. Then, using a calibrated new Keynesian framework and two measures of loss that incorporate a “balanced approach” to weigh inflation and the output gap, we find that loss is monotonically increasing in the length of the delay. Loss is reduced if policy, when it does react, is more aggressive. To investigate whether these results are sensitive to the assumption of rational expectations, we consider cognitive discounting as an alternative assumption about expectations. With cognitive discounting, forward guidance is less powerful and results in a reduction in the costs of delay. Under either assumption about expectations, the costs of a short delay can be eliminated by adopting a less inertial policy rule and a more aggressive response to inflation.
Keywords:
monetary policy; inflation policy delay; behavioral expectations; falling behind the curve; Policy delay; inflation outcome; inflation shock; supply chain disruption; trend inflation; Inflation; Output gap; Rational expectations; Central bank policy rate; Real interest rates
Cover IMF Working Papers
Here Comes the Change: The Role of Global and Domestic Factors in Post-Pandemic Inflation in Europe
Mahir Binici
,
Samuele Centorrino
,
Mr. Serhan Cevik
, and
Gyowon Gwon
Global inflation has surged to 7.5 percent in August 2022, from an average of 2.1 percent in the decade preceding the COVID-19 pandemic, threatening to become an entrenched phenomenon. This paper disentangles the confluence of contributing factors to the post-pandemic rise in consumer price inflation, using monthly data and a battery of econometric methodologies covering a panel of 30 European countries over the period 2002-2022. We find that while global factors continue to shape inflation dynamics throughout Europe, country-specific factors, including monetary and fiscal policy responses to the crisis, have also gained greater prominence in determining consumer price inflation during the pandemic period. Coupled with increasing persistence in inflation, these structural shifts call for significant and an extended period of monetary tightening and fiscal realignment.
Keywords:
Inflation; output gap; globalization; Phillips curve; dynamic factor model; fixed effect estimator; local projection method; inflation dynamics; consumer price inflation; fiscal policy response; inflation expectation; inflation process; commodity price; core CPI; Commodity prices; COVID-19; Energy prices; Global; Europe
Cover Departmental Papers
Taking Stock of IMF Capacity Development on Monetary Policy Forecasting and Policy Analysis Systems
Nils Mæhle
,
Tibor Hlédik
,
Mikhail Pranovich
,
Carina Selander
, and
Mikhail Pranovich
This paper takes stock of forecasting and policy analysis system capacity development (FPAS CD), drawing extensively on the experience and lessons learned from developing FPAS capacity in the central banks. By sharing the insights gained during FPAS CD delivery and outlining the typical tools developed in the process, the paper aims to facilitate the understanding of FPAS CD within the IMF and to inform future CD on building macroeconomic frameworks. As such, the paper offers a qualitative assessment of the experience with FPAS CD delivery and the use of FPAS in the decision-making process in central banks.
Keywords:
Forecasting and Policy Analysis System; FPAS; Central Banks; policy analysis system; monetary policy forecasting; IMF Library; capital markets department; FPAS capacity; Central bank policy rate; Exchange rates; Market interest rates; Output gap; Inflation; Sub-Saharan Africa; Europe; Africa
Cover IMF Working Papers
A Simple Macrofiscal Model for Policy Analysis: An Application to Morocco
Daniel Baksa
,
Mr. Ales Bulir
, and
Mr. Roberto Cardarelli
The paper describes a semistructural macrofiscal approach to simulating and forecasting macroeconomic policies. The model focuses on only a few variables that are consistent with the New Keynesian framework. Thanks to its simplicity, it facilitates an initial and intuitive understanding of monetary and fiscal policy transmission channels, and their main impact on economic activity. The model is adapted to Morocco and we demonstrate its application with an illustrative scenario of policy responses to a slower-than-expected recovery from the Covid-19 pandemic, under different monetary policy and exchange rate regimes.
Keywords:
Fiscal Policy; Morocco; Fiscal Multiplier; fiscal policy transmission channels; Policy reaction function; B. aggregate supply; peg regime; fiscal policy transmission mechanisms; Exchange rate arrangements; Real exchange rates; Output gap; Inflation targeting; Maghreb; Global
Cover IMF Working Papers
Optimal Simple Objectives for Monetary Policy when Banks Matter
Lien Laureys
,
Mr. Roland Meeks
, and
Boromeus Wanengkirtyo
We reconsider the design of welfare-optimal monetary policy when financing frictions impair the supply of bank credit, and when the objectives set for monetary policy must be simple enough to be implementable and allow for effective accountability. We show that a flexible inflation targeting approach that places weight on stabilizing inflation, a measure of resource utilization, and a financial variable produces welfare benefits that are almost indistinguishable from fully-optimal Ramsey policy. The macro-financial trade-off in our estimated model of the euro area turns out to be modest, implying that the effects of financial frictions can be ameliorated at little cost in terms of inflation. A range of different financial objectives and policy preferences lead to similar conclusions.
Keywords:
Monetary policy; Simple loss function; Banks; Medium-scale DSGE models; Euro area economy.; WP; output gap stabilization; output gap volatility; output gap-inflation trade-off; inflation-output gap trade-off; stabilization objective; Euro area economy; Output gap; Inflation; Financial frictions; Inflation targeting; Production growth
Cover IMF Working Papers
The Monetary Policy Credibility Channel and the Amplification Effects in a Semi-structural Model
Thitipat Chansriniyom
,
Mr. Natan P. Epstein
, and
Valeriu Nalban
The paper extends a standard semi-structural model to account for nonlinear and asymmetric effects of monetary policy credibility. In our setting, central bank credibility is proportional to the deviation of inflation expectations from the announced inflation target, with positive deviations being more costly compared to negative ones. A loss in policy credibility as a result of shocks leads to a more persistent, backward-looking inflation process, and is associated with lower output. We find that the extended model with credibility effects matches well the key macroeconomic data over specific past episodes for Indonesia and Philippines and consider its adaptation to integrated policy frameworks as an area for further exploration.
Keywords:
WP; inflation expectation; transmission mechanism; MP credibility; high-inflation regime; inflation variability; exchange rate; inflation persistence; inflation target; inflation deviation; inflation development; Inflation; Output gap; Central bank policy rate; Inflation targeting; Price stabilization; Southeast Asia; Monetary policy credibility; Inflation expectations; Indonesia; Philippines; Asia and Pacific
Cover IMF Working Papers
A Simple Macrofiscal Model for Policy Analysis: An Application to Cambodia
Daniel Baksa
,
Mr. Ales Bulir
, and
Dyna Heng
The paper describes a semistructural macrofiscal approach to simulating and forecasting macroeconomic policies. Our canonical model is adapted to Cambodia and we demonstrate its application with an illustrative scenario of macroeconomic effects of the Covid-19 pandemic. Complemented with near-term forecasting tools and expert judgment, the dynamics of the model helps to inform policymakers about medium-term transmission channels and thus guide policy advice.
Keywords:
WP; nominal exchange rate; potential GDP; country risk; aggregate supply; reaction function; business cycle; transmission mechanism; exchange rate regime; central bank; Real exchange rates; Exchange rates; Real interest rates; Return on investment; Output gap; Global; Fiscal Policy; Cambodia; Fiscal Multiplier; NBC monetary policy option
Cover IMF Working Papers
Estimating the Neutral Interest Rate in the Kyrgyz Republic
Iulia Ruxandra Teodoru
and
Asel Toktonalieva
This paper estimates the neutral interest rate in the Kyrgyz Republic using a range of methodologies. Results indicate that the real neutral rate is about 4 percent based on an average of models and 3.7 percent based on a Quarterly Projection Model. This is higher than in many emerging markets and is likely explained by higher public debt and an elevated risk premium, low creditor rights and contractual enforcement, and low domestic savings. The use of an estimate of the neutral interest rate provides useful guidance to monetary policy and enhances transparency and independence of the central bank. Our estimate provides a quantitative benchmark for the monetary policy stance in the context of a central bank that is building analytical capacity, integrating additional insights in its decision-making process, and working to improve its communication. Strengthening the monetary transmission mechanism will be critical to enhance the effectiveness of monetary policy, including by allowing more exchange rate flexibility to support the transition to a full-fledged inflation targeting regime, and reducing excess liquidity to enhance the credit channel, reducing dollarization and high interest rate spreads that adversely affect the transmission of the policy rate to the economy.
Keywords:
WP; interest rate; neutral rate; interest rate gap; transmission mechanism; inflation target; risk premium; policy rate; food inflation; inflation expectation; Inflation; Real interest rates; Central bank policy rate; Output gap; Exchange rates; Global; neutral interest rate; monetary policy stance; Taylor rule; quarterly projection model; general equilibrium model; federal funds rate; effectiveness of monetary policy; Inflation targeting; Middle East and Central Asia
Cover IMF Working Papers
Exchange Rate Volatility and Pass-Through to Inflation in South Africa
Mr. Ken Miyajima
Does the South African rand’s relatively large volatility affect inflation? To shed some light on this question, a standard estimation technique of exchange rate pass-through to inflation is extended to incorporate exchange rate volatility. Estimated results suggest that higher exchange rate volatility tends to increase core inflation but to a relatively limited extent in South Africa. The finding lends support to the policy of allowing the rand to float freely and work as a shock absorber, consistent with the nation’s successful inflation targeting regime.
Keywords:
WP; core inflation; exchange rate volatility; price; Exchange rate pass-through; inflation; NEER depreciation; food price inflation; rand volatility; ERPT terms; exchange rate variable; volatility data; fuel price inflation; Exchange rates; Depreciation; Output gap; Africa; Global
Cover IMF Working Papers
Is Digitalization Driving Domestic Inflation?
Mr. Balazs Csonto
,
Yuxuan Huang
, and
Mr. Camilo E Tovar Mora
This paper examines the extent to which digitalization—measured by a new proxy based on IP addresses allocations per country—has influenced inflation dynamics in a sample of 36 advanced and emerging economies over 2000-2017. Phillips curve estimates show that digitalization has a statistically significant negative effect on inflation in the short run. Its economic impact is not large but has increased since 2012 and mainly operates through a cost/competition channel. Principal components and cointegration analysis further suggest digitalization is a key driver of lower trend inflation.
Keywords:
WP; Phillips curve; Inflation; Digitalization; IP Address; Internet; inflation expectation; inflation dynamics; food inflation; inflation trend; inflation variation; trend inflation; inflation gap; Global value chains; Digital economy; Output gap; Global