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Middle East and Central Asia > Saudi Arabia

You are looking at 1 - 10 of 82 items for :

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Cover IMF Working Papers
Shocks and Shields: Macroeconomic Institutions During Commodity Price Swings
Rabah Arezki
,
Patrick A. Imam
, and
Kangni R Kpodar
Countries facing commodity (net) export price shocks tend to implement fiscal rules and to financially close their economies, demonstrating “macroeconomic prudence”. These effects are (unsurprisingly) asymmetric between import and export price shocks. The impact of commodity (net) export prices on macroeconomic institutions is influenced by the intensity of shocks and income levels of the countries, with higher-income countries driving the main results. These findings remain robust across various checks, including different estimators and additional control and dependent variables. These findings suggest that macroeconomic institutions are reactive to terms of trade shocks stemming from commodity price fluctuations.
Keywords:
Commodity prices; macroeconomic institutions; natural resources; resource curse; price shock; commodity export; commodity terms of trade shock; impact of commodity; commodity export windfall; Commodity price shocks; Fiscal rules; Export prices; Exchange rate arrangements; Global
Cover IMF Working Papers
Inflation Dynamics in the Gulf Cooperation Council (GCC): What is the Role of External Factors?
Fozan Fareed
,
Abolfazl Rezghi
, and
Charlotte Sandoz
Inflationary pressures have intensified in the Gulf Cooperation Council (GCC) in 2021-2022, mainly driven by a pick-up in tradeable goods inflation. Despite this increase, inflation remained relatively contained as compared to regional comparators. This paper aims to provide a comprehensive analysis of inflation dynamics in the region, with a focus on external factors because of GCC’s high reliance on international trade. Using a Global Vector Autoregressive model with quarterly data from 1987 to 2022, we find that external factors such as the imported inflation from main trading partners, mainly driven by China, and nominal effective exchange rate (NEER) are the main drivers of inflation in the GCC region. Additionally, we find that the direct pass-through of international commodity price shocks such as oil and raw agricultural materials is somewhat limited, after controlling for trading partners’ inflation, which can be explained by the prevalence of subsidies and administered prices in the region. Overall, since external factors are the main drivers of domestic inflation in the GCC, an increased focus on diversification, promoting food security, and ensuring prudent central bank policies, including through effective liquidity management frameworks, can play a key role in managing this impact.
Keywords:
Inflation; external shocks; GCC; panel data; GVAR.; GCC inflation; inflation dynamics; GCC country; GCC economy; inflation in GCC; Nominal effective exchange rate; Oil prices; Supply shocks; Food prices; Global
Cover IMF Staff Country Reports
Burundi: Request for a 38-Month Arrangement under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Burundi
International Monetary Fund. African Dept.
This paper highlights Burundi’s Request for a 38-Month Arrangement under the Extended Credit Facility (ECF). Burundi faces protracted balance of payments needs with a widening current account deficit and low foreign reserves coverage, large development needs, and macroeconomic challenges triggered by spillovers from the war in Ukraine and domestic climate shocks and livestock sanitary crisis. The 38-month arrangement under the ECF will help cushion Burundi’s adjustment and support the authorities’ reform agenda aimed at reducing debt vulnerabilities, recalibrating exchange rate and monetary policies to restore external sustainability, and strengthening inclusive economic growth and governance. Under the ECF arrangement, the authorities aim to recalibrate Burundi’s macroeconomic policy mix. They plan to restore external sustainability with the unification of the official and parallel exchange rate markets and foreign exchange market liberalization, while being attuned to financial sector vulnerabilities. They will strengthen debt sustainability and achieve a better-quality fiscal consolidation path through higher domestic revenue mobilization, scaled-up investment and better targeted spending, and prudent borrowing.
Keywords:
year contract; Burundian authorities; coordination committee; FX market liberalization; policy reform; anchor inflation expectation; Currency markets; Africa; Global; Southern Africa; East Africa
Cover IMF Working Papers
Commodity Shocks and Exchange Rate Regimes: Implications for the Caribbean Commodity Exporters
Mr. Ali J Al-Sadiq
and
Ms. Inci Ötker
Declining commodity prices during mid-2014-2016 posed significant challenges to commodity-exporting economies. The severe terms of trade shock associated with a sharp fall in world commodity prices have raised anew questions about the viability of pegged exchange rate regimes. More recently, the COVID-19 pandemic and the measures needed to contain its spread have been associated with a significant disruption in several economic sectors, in particular, travel, tourism, and hospitality industry, adding to the downward pressure on commodity prices, a sharp fall in foreign exchange earnings, and depressed economic activity in most commodity exporters. This paper reviews country experiences with different exchange rate regimes in coping with commodity price shocks and explores the role of flexible exchange rates as a shock absorber, analyzing the macroeconomic impact of adverse term-of-trade shocks under different regimes using event study and panel vector autoregression techniques. It also analyzes, conceptually and empirically, policy and technical considerations in making exchange rate regime choices and discusses the supporting policies that should accompany a given regime choice to make that choice sustainable. It offers lessons that could be helpful to the Caribbean commodity-exporters.
Keywords:
commodity shock; commodity exporter; regime choice; Caribbean commodity-exporter; I. commodity terms-of-trade Index; Exchange rate arrangements; Exchange rate flexibility; Exchange rates; Exchange rate adjustments; Caribbean; Global; Africa
Cover Policy Papers
2020 Quota Data Update
International Monetary Fund. Finance Dept.
and
International Monetary Fund. Statistics Dept.
This paper presents the annual update of the quota database and extends the database by one year through 2018. The paper provides an overview of the data and of the methodology and covers the quota formula variables and calculated quota shares based on the current quota formula.
Keywords:
PP; PPP price level indices; PPP GDP share; PPP data; PPP factor; PPP GDP variable; PPP price level index; extrapolated PPP estimate; ICP benchmark; Purchasing power parity; Financial account; Middle East; Western Hemisphere; Africa
Cover IMF Working Papers
Liquidity Management under Fixed Exchange Rate with Open Capital Account
Mariam El Hamiani Khatat
and
Mr. Romain M Veyrune
This paper introduces a theoretical framework for liquidity management under fixed exchange rate arrangement, derived from the price-specie flow mechanism of David Hume. The framework highlights that the risk of short-term money market rates un-anchoring from the uncovered interest rate parity due to money and foreign exchange market frictions could jeopardize financial stability and market development. The paper then discusses operational solutions that stabilize money market rates close to the level implied by the Uncovered Interest Rate Parity (UIP). Liquidity management under fixed exchange rate with an open capital account presents specific challenges due to: (1) the larger liquidity shocks induced by foreign reserve swings that challenge the development of money markets; and (2) more complicated liquidity forecasts. The theoretical framework is empirically tested based on the estimate of “offset” coefficients for Denmark and Hong Kong SAR.
Keywords:
WP; exchange rate; central bank; interest rate; rate; Fixed exchange rate regime; price-specie flow mechanism; uncovered interest rate parity; offset coefficients; monetary operations; autonomous factors; money and foreign exchange markets; discount window; capital account; supply curve; money market rate; excess reserves; FX intervention; central bank liquidity management; liquidity absorption operation; liquidity-providing operation; liquidity shock; money demand; country risk; Conventional peg; Exchange rate arrangements; Money markets; Liquidity management; Global
Cover IMF Working Papers
Determinants of Currency Composition of Reserves: a Portfolio Theory Approach with an Application to RMB
Miss Yinqiu Lu
and
Yilin Wang
The way central banks manage their foreign reserve assets has evolved over the past decades. One major trend is managing reserves in two or more tranches—liquidity tranche and investment tranche—especially for those with adequate reserves. Incorporating reserve tranching, we have developed in this paper a central bank’s reserve portfolio choice model to analyze the determinants of the currency composition of reserves. In particular, we adopt the classical mean-variance framework for the investment tranche and the asset-liability framework for the liquidity tranche. Building on these frameworks, the roles of currency compositions in imports invoicing and short-term external debt, and risk and returns of reserve currencies can be quantified by our structural model—a key contribution of our paper given the absence of structural models in the literature. Finally, we estimate the potential paths of the share of RMB in reserves under different scenarios to shed light on its status as an international currency.
Keywords:
WP; government bond; exchange rate; currency composition; FX reserves; portfolio theory; RMB; liquidity tranche; FX reserve; investment tranche; allocation decision; Currencies; Reserve currencies; Liquidity; Global
Cover IMF Exchange Rate Policy Advice
IMF Exchange Rate Policy Advice
Revisiting the 2007 IEO Evaluation
Louellen Stedman
,
Mr. John Hicklin
, and
Roxana Pedraglio

Abstract

This report is the seventh in a series of evaluation updates by the Independent Evaluation Office of the IMF (IEO) that return to past IEO evaluations and assess the continuing relevance of their main conclusions. The report revisits the 2007 evaluation of IMF Exchange Rate Policy Advice, which found that the IMF was “not as effective as it needed to be” in fulfilling its responsibilities for exchange rate surveillance in the period 1999–2005. While acknowledging the inherent complexity of providing exchange rate policy advice, including the lack of professional consensus on many of the key issues, the evaluation observed serious weaknesses in the IMF’s work on key analytical issues and in its engagement with members. The update finds that the IMF has substantially overhauled its approach to exchange rate policy advice since 2007. Key steps taken include: adoption of a more comprehensive approach to exchange rate surveillance under the 2012 Integrated Surveillance Decision; development of enhanced analytical tools; a new institutional view on capital flows; and introduction of the annual External Sector Report that provides an integrated picture of the external balances of major economies. The IMF continues to work on further enhancements of its approach. Nonetheless, the update concludes that challenges remain that impact the effectiveness of the IMF’s work in an area central to its mandate. The approach for assessing external balances and exchange rates continues to be contentious, in part reflecting differing views across the membership about the process of external adjustment. There are also ongoing questions in other areas, including considerations for exchange rate regime choice, attention to policy spillovers, the institutional view on capital flows, and data availability. The update suggests that the persistence of key issues identified in 2007 merits a full evaluation by the IEO.

Keywords:
IEOR; IEO; Policy advice; evaluation; advice; policy; IMF engagement; IMF analysis; a number of IMF staff; IMF's methodology; Exchange rate policy; Exchange rates; Exchange rate arrangements; External balance assessment (EBA); Current account; Global
Cover IMF Working Papers
Unconventional Policies and Exchange Rate Dynamics
Gustavo Adler
,
Mr. Ruy Lama
, and
Juan Pablo Medina
We study exchange rate dynamics under cooperative and self-oriented policies in a two-country DSGE model with unconventional monetary and exchange rate policies. The cooperative solution features a large exchange rate adjustment that cushions the impact of negative shocks and a moderate use of unconventional policy instruments. Self-oriented policies (Nash equilibrium), however, entail limited exchange rate movements and an aggressive use of unconventional policies in both countries. Our results highlight the role of international policy cooperation in allowing the exchange rate to play the traditional role of shock absorber.
Keywords:
WP; exchange rate; quantitative easing; Foreign Exchange Intervention; International Policy; FX intervention; demand shock; exchange rate depreciation; FX reserve; nominal exchange rate; QE policy; nominal interest rate; QE measure; QE stimulus; FX intervention policy; Bonds; Real exchange rates; Unconventional monetary policies; Exchange rates; Global
Cover IMF Working Papers
A Network Model of Multilaterally Equilibrium Exchange Rates
Mr. Alexei P Kireyev
and
Andrei Leonidov
This paper proposes a network model of multilaterally equilibrium exchange rates. The model introduces a topological component into the exchange rate analysis, consistently taking into account simultaneous higher-order interactions among all currencies. The paper defines the currency demand indicator. On its base, it derives a multilateral exchange rate network, finds its dynamically stationary position, and identifies the multilaterally equilibrium levels of bilateral exchanges rates. Potentially, the model can be developed further to calculate the deviations of the observed bilateral exchange rates from their multilaterally equilibrium levels, which can be interpreted as their over- or undervaluation. For illustration, the model is applied to daily 1995-2016 exchange rates among 130 currencies sourced from the Thomson Reuters Datastream.
Keywords:
WP; base currency; currency pair; world currency market; equilibrium exchange rates; exchange rate; networks; equilibrium; trade; network; exchange rate network; network consist; network stationarity; Exchange rates; Currencies; Currency markets; Exchange rate modelling; Reserve currencies; Global