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Europe > Ukraine

You are looking at 1 - 10 of 54 items for :

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Cover IMF Working Papers
Sovereign Environmental, Social, and Governance (ESG) Investing: Chasing Elusive Sustainability
Ekaterina Gratcheva
and
Bryan Gurhy
This paper evaluates the progression of the sovereign ESG landscape since the initial comprehensive assessment of the sector in 2021 in “Demystifying Sovereign ESG” by conducting a comparative analysis of the current sovereign ESG methodologies of commercial ESG providers. The 2021 study articulated the distinct nature of the sovereign ESG segment from corporate ESG and documented fundamental shortcomings in sovereign ESG methodologies, such as the “ingrained income bias”, lack of consensus on environmental performance, and conflation of risk and sustainability objectives. While sovereign ESG methodologies have evolved since 2021, the significant correlation across providers of aggregate, S, and G scores persist. In response to market demand there has been a notable shift towards greater focus on the E pillar against growing heterogeneity on climate and environmental considerations across ESG providers. The findings underscore the disparity between perceptions and realities in implementing a sustainability strategy within the sovereign debt asset class. This necessitates a reevaluation of sovereign ESG scoring methodologies towards outcome-based metrics and urges a globally coordinated effort to establish robust sustainability measurement frameworks.
Keywords:
ESG; sovereign debt; sovereign ESG scores; sustainability; environmental and climate sustainability; climate financial architecture; ESG provider; ESG methodology; sovereign Environmental, Social, and Governance; ESG landscape; ESG score; Corporate social responsibility; Environmental sustainability; Income; Climate finance; Global; Middle East
Cover IMF Working Papers
Changing Global Linkages: A New Cold War?
Gita Gopinath
,
Pierre-Olivier Gourinchas
,
Andrea F Presbitero
, and
Petia Topalova
Global linkages are changing amidst elevated geopolitical tensions and a surge in policies directed at increasing supply chain resilience and national security. Using granular bilateral data, this paper provides new evidence of trade and investment fragmentation along geopolitical lines since Russia’s invasion of Ukraine, and compares it to the historical experience of the early years of the Cold War. Gravity model estimates point to significant declines in trade and FDI flows between countries in geopolitically distant blocs since the onset of the war in Ukraine, relative to flows between countries in the same bloc (roughly 12% and 20%, respectively). While the extent of fragmentation is still relatively small and we do not know how longlasting it will be, the decoupling between the rival geopolitical blocs during the Cold War suggests it could worsen considerably should geopolitical tensions persist and trade restrictive policies intensify. Different from the early years of the Cold War, a set of nonaligned ‘connector’ countries are rapidly gaining importance and serving as a bridge between blocs. The emergence of connectors has likely brought resilience to global trade and activity, but does not necessarily increase diversification, strengthen supply chains, or lessen strategic dependence.
Keywords:
Trade; Foreign direct investment; Geoeconomics; Fragmentation; supply chain resilience; restrictive policy; nonaligned connector; years of the Cold War; surge in policy; Trade balance; Imports; Trade agreements; Trade policy; Global
Cover IMF Working Papers
Understanding Inflation Dynamics: The Role of Global Shocks in CEMAC
Johanna Tiedemann
,
Olivier Bizimana
,
Lluis Dalmau
, and
Martin Ambassa
As in the rest of the world, inflation in CEMAC surged more quickly and persistently than expected during the 2021–23 period. This paper examines the drivers of inflation dynamics and the contribution of global shocks to inflation persistence in CEMAC. We use a Phillips curve framework combined with the local projections method. Our results confirm the prominent role of global factors in driving inflation dynamics. Global commodity food and oil price fluctuations, and shipping costs are the main factors explaining the large variability in headline inflation. Further, we find that global price shocks have sizable and persistent effects on domestic headline inflation, with differences in the magnitude and speed of pass-through. The pass-through from commodity food price fluctuations to headline inflation is higher and more persistent than that of other global price shocks, reflecting the large share of food in the consumption baskets, which makes inflation more vulnerable to direct effects of international food shocks, but also larger second-round effects.
Keywords:
Inflation; underlying inflation; Phillips curve; commodity prices; shipping costs; CEMAC; inflation dynamics; price shock; commodity food price fluctuation; baseline result; inflation expectation; inflation development; Oil prices; Commodity price shocks; Food prices; Global
Cover IMF Working Papers
Debt Surges—Drivers, Consequences, and Policy Implications
Florian Schuster
,
Marwa Alnasaa
,
Lahcen Bounader
,
Il Jung
,
Jeta Menkulasi
, and
Joana da Mota
Many countries find themselves with elevated debt levels, increased debt vulnerabilities, and tight financing conditions, while also facing increased spending needs for development and transition to a greener economy. This paper aims to place the current debt landscape in a historical context and investigate the drivers of debt surges, to what degree they result in a crisis as well as examine post-surge debt trajectories and under what conditions debt follows a non-declining path. We find that fiscal policy and stock-flow adjustments play important roles in debt dynamics with the valuation effects arising from currency depreciation explaining more than half of stock flow adjustments in LICs. Debt surges are estimated to result in a financial crisis with a probability of 11–20 percent and spending-driven fiscal expansions during debt surges tend to result in a high probability of non-declining debt path.
Keywords:
Public debt; debt surges; financial crisis; stock-flow adjustment; exchange rate depreciation; fiscal expansion; debt surge; surge episode; surge attribute; post debt path; surge debt trajectory; Contingent liabilities; Global
Cover IMF Working Papers
Monetary Policy with Uncertain Inflation Persistence
Luis Brandão-Marques
,
Roland Meeks
, and
Vina Nguyen
When uncertain about inflation persistence, central banks are well-advised to adopt a robust strategy when setting interest rates. This robust approach, characterized by a "better safe than sorry" philosophy, entails incurring a modest cost to safeguard against a protracted period of deviating inflation. Applied to the post-pandemic period of exceptional uncertainty and elevated inflation, this strategy would have called for a tightening bias. Specifically, a high level of uncertainty surrounding wage, profit, and price dynamics requires a more front-loaded increase in interest rates compared to a baseline scenario which the policymaker fully understands how shocks to those variables are transmitted to inflation and output. This paper provides empirical evidence of such uncertainty and estimates a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model for the euro area to derive a robust interest rate path for the ECB which serves to illustrate the case for insuring against inflation turning out to have greater persistence.
Keywords:
Robust policy; monetary policy; uncertainty; inflation persistence; wage and price dynamics.; Monetary Policy stance; policy rule parameter; price Persistence; IMF working paper 2024/47; inflation expectation; Inflation; Central bank policy rate; Output gap; Wages; Europe; Central and Eastern Europe; Eastern Europe
Cover IMF Working Papers
Medium-term Macroeconomic Effects of Russia’s War in Ukraine and How it Affects Energy Security and Global Emission Targets
Hugo Rojas-Romagosa
Russia’s war in Ukraine has disrupted the supply of natural gas for many European countries, triggering an energy crisis and affecting energy security. We simulate the medium-term effects of these trade disruptions and find that most European countries have limited GDP losses but those more dependent on Russian natural gas face moderate losses. European fossil fuel consumption and emissions are reduced and after accounting for the war impacts, achieving Europe’s emission targets becomes slightly less costly. In terms of energy security, the war eliminates European energy dependency from Russian imports, but most of the natural gas and oil imports will be substituted by other suppliers. We also find that constructing a new Russian pipeline to China does not provide significant macroeconomic benefits to either country.
Keywords:
Energy supply; energy security; trade disruptions; greenhouse gas emissions; computable general equilibrium; baseline share; w.r.t. baseline price; w.r.t baseline price; oil import; Natural gas sector; Imports; Exports; Electricity; Europe; Global
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
Is Inflation Good for Business? The Firm-Level Impact of Inflation Shocks in the Baltics, 1997-2021
Serhan Cevik
,
Alice Fan
, and
Sadhna Naik
Using a large panel of firm-level data, this paper provides an analysis of how inflation shocks in the Baltics between 1997 and 2021 affected total factor productivity (TFP), gross profitability, and net fixed investment in nonfinancial sectors. First, we find that inflation and inflation volatility had mixed effects on TFP growth, profitability and net fixed investment in the first year as well as over the medium term, albeit at a dissipating rate. Second, focusing on subsamples, we find that inflation shocks had differential effects on large versus small firms. Third, we explore sectoral heterogeneity in how firms responded to inflation shocks and observe significant variation across tradable and non-tradable sectors. Finally, estimates from a state-dependent model suggest that firms’ response to inflation shocks varied with the state of the economy. The results suggest that nonfinancial firms in the Baltics have been agile in adjusting to inflation shocks, possibly by either transferring higher production costs to consumers or substituting inputs. Given the differences in the level and nature of the recent inflation shock and the sample period on which our analysis is based, empirical findings presented in this paper might not necessarily apply to the latest bout of inflation in the Baltics.
Keywords:
Inflation; firm performance; productivity; profitability; fixed investment; Baltics; Estonia; Latvia; Lithuania; inflation shock; inflation volatility; IMF working paper No. 24/43; nonfinancial firm; impact of inflation; affected total factor productivity; Total factor productivity; Economic recession
Cover IMF Working Papers
Determinants of Zombie Banks in Emerging Markets and Developing Economies
Torsten Wezel
,
Hannah Sheldon
, and
Zhengwei Fu
While deeply undercapitalized banks have been shown to misallocate credit to weak firms, the drivers of such zombie banks are less researched, particularly across countries. To furnish empirical evidence, we compile a dataset of undercapitalized banks from emerging markets and developing economies. We classify zombie banks as those not receiving remedial treatment by owners or regulators or, alternatively, remaining chronically undercapitalized. Using logit regressions, we find that country-specific factors are more influential for zombie status than bank characteristics, alhough some become significant when disaggreating by region. The paper’s overall findings imply the need for a proper regulatory framework and an effective resolution regime to deal with zombie banks more decisively.
Keywords:
Banks; Capital Requirements; Financial Crises; summary statistics; zombie bank; zombie share; zombie status; equity ratio; Banking crises; Bank resolution; Credit; Asia and Pacific; Global; Europe; Africa
Cover IMF Working Papers
Carbon Prices and Inflation in the Euro Area
Maximilian Konradt
,
Thomas McGregor
, and
Frederik G Toscani
What is the effect of carbon pricing on inflation? This paper shows empirically that the consequences of the European Union’s Emission Trading System (ETS) and national carbon taxation on inflation have been limited in the euro area, so far. This result is supported by analysis based on a panel local projections approach, as well as event studies based on individual countries. Our estimates suggest that carbon taxes raised the price of energy but had limited effects on overall consumer prices. Since future climate policy will need to be much more ambitious compared to what has been observed so far, including the need for larger increases in carbon prices, possible non-linearities might make extrapolating from historical results difficult. We thus also use input-output tables to simulate the mechanical effect of a carbon tax consistent with the EU’s ‘Fit-for-55’ commitments on inflation. The required increase of effective carbon prices from around 40 Euro per ton of CO2 in 2021 to around 150 Euro by 2030 could raise annual euro area inflation by between 0.2 and 0.4 percentage points. It is worth noting that the energy price increases caused by the rise in the effective carbon price to 150 Euro is substantially smaller than the energy price spike seen in 2022 following the invasion of Ukraine.
Keywords:
Green transition; carbon taxes; climate policy; inflation; energy price spike; EU ETS price; European Union's Emission Trading System; headline inflation; EU ETS; price level; Carbon tax; Greenhouse gas emissions; Consumer prices; Europe; Global