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Europe > Ukraine

You are looking at 1 - 10 of 25 items for :

  • Type: Journal Issue x
  • Wages, Compensation, and Labor Costs: General x
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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
Financial Shock Transmission to Heterogeneous Firms: The Earnings-Based Borrowing Constraint Channel
Livia Chiţu
,
Magdalena Grothe
,
Tatjana Schulze
, and
Ine Van Robays
We study the heterogeneous impact of jointly identified monetary policy and global risk shocks on corporate funding costs. We disentangle these two shocks in a structural Bayesian Vector Autoregression framework and investigate their respective effects on funding costs of heterogeneous firms using micro-data for the US. We tease out mechanisms underlying the effects by contrasting traditional financial frictions arising from asset-based collateral constraints with the recent earnings-based borrowing constraint hypothesis, differentiating firms across leverage and earnings. Our empirical evidence strongly supports the earnings-based borrowing constraint hypothesis. We find that global risk shocks have stronger and more heterogeneous effects on corporate funding costs which depend on firms' position within the earnings distribution.
Keywords:
Corporate spreads; earnings-based borrowing constraint; heterogeneous firms; monetary policy shocks; global risk shocks; constraint hypothesis; borrowing constraint channel; shock transmission; earnings distribution; funding cost; tail firm; Bonds; Wages; Corporate bonds; Asset prices; Monetary tightening; Global
Cover IMF Working Papers
Revisiting Covid Scarring in Emerging Markets
Chris Jackson
and
Jason Lu
The Covid-19 pandemic is expected to result in large and persistent losses in economic output, known as scarring. These losses were expected to be more severe in Emerging Markets than in Advanced Economies. This paper examines the impact of Covid on output in Emerging Markets so far and its implications for projections of economic scarring. While Covid has had a material impact on activity, the recovery has been stronger than initially expected. We find that these positive data surprises have over time been treated increasingly as transitory rather than a signal for the state of scarring. Second, we show that the composition of output losses has been qualitatively different from past last shocks. History suggests that the main driver of scarring is weak productivity. Covid losses, however, have so far been more skewed to employment with a smaller than usual impact on productivity. We argue that these findings suggest that scarring, while substantial, may be ultimately less severe than initially feared, at least over the medium term. We provide alternative sets of medium-term projections to indicate potential magnitudes.
Keywords:
COVID-19; scarring; medium-term output; Emerging Markets; output loss; GDP growth data; revisiting Covid; POST-Covid GDP loss; scarring estimate; Total factor productivity; Employment; Emerging and frontier financial markets; Wages; Global
Cover IMF Staff Country Reports
Italy: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Italy
International Monetary Fund. European Dept.
The 2023 Article IV Consultation highlights that the Italian economy has weathered well the effects of Russia’s war in Ukraine, growing by 3.7 percent in 2022. Private consumption rose robustly on recovery in employment, buoyant tourism, and extensive fiscal support of real purchasing power. Growth in services and construction offset weakness in manufacturing, especially in energy-intensive industries affected by high-energy prices. Consumer prices increased, largely on surging energy prices, financial conditions tightened considerably and yields on Italian government bonds have risen as monetary policy tightened. Growth is expected to enter a slower phase and downside risks dominate the outlook. Growth is forecast to moderate to 1.1 percent in 2023 and to 0.9 percent in 2024, and then to pick up temporarily to 1.1 percent in 2025. Headline inflation is projected to decline steeply to 5.2 percent in 2023 and to 2.5 percent in 2024, driven by lower energy and food prices.
Keywords:
headline inflation; money market rate; private sector liquidity; current account norm; potential GDP; export market shares; liability positions vis-a-vis nonresident; Energy prices; Tax allowances; Loans; Wages; Global
Cover IMF Staff Country Reports
Japan: 2023 Article IV consultation-Press Release; Staff Report; and Statement by the Executive Director for Japan
International Monetary Fund. Asia and Pacific Dept
This 2023 Article IV Consultation highlights that the Japanese economy continues to recover driven by domestic demand while a weaker global economy has been weighing on external demand. The economic recovery is projected to continue in the near term amid pent-up demand, supply chain improvements, border reopening and policy support. Japan’s economic recovery is expected to continue, supported by pent-up demand, supply chain improvements, border reopening, and policy support. Inflation is expected to rise further in early 2023, reflecting the delayed effect of yen depreciation and border reopening before declining again. While domestic risks are balanced, there are significant external downside risks to growth. Structural policies should help boost income growth, support start-ups, deepen digitalization, and achieve climate targets. Labor market policies should encourage more women and older persons to join the work force and reduce labor market duality. Higher carbon pricing could help Japan achieve its climate targets in a growth-friendly way.
Keywords:
JGB yield; ultra-loose policy; money market rate; staff appraisal; base wage growth; Inflation; Climate change; Wages; Inflation targeting; Income; Global; Asia and Pacific
Cover IMF Staff Country Reports
Belgium: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Belgium
International Monetary Fund. European Dept.
The 2022 Article IV Consultation discusses that Belgium’s post-pandemic recovery has slowed with spillovers from Russia’s war in Ukraine, high inflation, tighter financial conditions, and elevated uncertainty. In response to the spike of energy prices, the federal and regional authorities provided timely and substantial support to households and firms. Along with automatic indexation of wages and benefits, energy support helped cushion impacts, although at significant cost, increasing the fiscal deficit in 2022 and 2023. The labor market has remained tight, with record-high job creation and low unemployment. The external current account swung to a large deficit in 2022, due largely to higher energy imports and lower vaccine exports. A resilient financial sector is facing challenges from the weaker macro-financial environment. Some important structural reforms took place in 2022. Risks are tilted to the downside, related to escalation of the war in Ukraine and a sharper-than-expected tightening of financial conditions. Lower energy prices would reduce fiscal pressures, and with progress on structural reforms before elections in 2024, boost confidence.
Keywords:
product market reform; indexation mechanism; money market rate; policy reform; consumer confidence; Policy discussion; State secretaries Bertrand; Energy prices; Inflation; Wage indexation; Wages; Anti-money laundering and combating the financing of terrorism (AML/CFT); Global
Cover Selected Issues Papers
Wage Indexation and International Competitiveness in Belgium: An Uneasy Coexistence: Belgium
André Geis
Belgium is one of a small group of euro area countries that maintains indexation of wages to inflation as part of its wage setting framework. With intensified price pressures since late 2020 driving inflation to record levels, the tension between compensating workers for purchasing power losses while maintaining international competitiveness have again been highlighted. To improve the performance and viability of the current setup, several avenues of reform could be envisaged. In particular, the scope for excluding price increases in highly volatile components, like energy and food, from the indexation basis should be explored to less the need to restore competitiveness by prolonged periods of real wage restraint. Moreover, options to widen the flexibility of the indexation regime should be contemplated to alleviate the burden of firms at times of large and multiple shocks, thereby also preserving investment and employment. Finally, productivity trends should also be accounted for to capture deviations of labor costs between Belgium and its key export markets.
Keywords:
inflation; price setting; collective bargaining; wage formation; wage setting; wage indexation; inflation indexation; international competitiveness; indexation basis; indexation regime; energy price inflation; health index inflation driver; Wages; Energy prices; Global; Baltics
Cover World Economic Outlook, October 2022
World Economic Outlook, October 2022
International Monetary Fund. Research Dept.

Abstract

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook. Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024. Monetary policy should stay the course to restore price stability, and fiscal policy should aim to alleviate the cost-of-living pressures while maintaining a sufficiently tight stance aligned with monetary policy. Structural reforms can further support the fight against inflation by improving productivity and easing supply constraints, while multilateral cooperation is necessary for fast-tracking the green energy transition and preventing fragmentation.

Keywords:
growth; growth outlook; global recession; adverse scenario; output gap; output losses; COVID-19; pandemic; scarring; inflation; core inflation; inflation expectations; monetary policy; financial conditions; debt distress; sovereign spreads; fiscal policy; disinflation; food and energy prices; Russian gas supplies; pandemic; war in Ukraine; current account; dollar strength; capital flows; China real estate sector; fragmentation; multilateral cooperation; climate change; climate policies; Wages; wage dynamics; wage-price spirals; inflation; labor markets; expectations; monetary policy; interest rates; nominal wages; real wages; unemployment; tightness; supply-demand imbalances; COVID-19; pandemic; recovery; de-anchoring; Phillips curve; pass-through; demand shocks; supply shocks; supply-chain shocks; sectoral shocks; monetary policy shocks; cost-push shocks; expectations formation; rational expectations; adaptive expectations; adaptive learning; historical episodes; advanced economies; emerging market economies; climate policy; monetary policy; inflation; energy transition; carbon pricing; macroeconomic model; GMMET; output-inflation tradeoff; GHG taxes; green subsidies; green investment; inflation expectation; price inflation; wage-price spiral; wage growth; headline inflation; Carbon tax; Greenhouse gas emissions; Global; Europe; Caribbean; Middle East and Central Asia; Africa
Cover IMF Working Papers
Second-Round Effects of Oil Price Shocks — Implications for Europe’s Inflation Outlook
Chikako Baba
and
Mr. Jaewoo Lee
The pass-through effects of oil price shocks on wage and consumer price inflation vary with the states or structural characteristics of an economy. The effects have declined over time in Europe and been higher in emerging European economies than in advanced economies. The pass-through to wages is found to have been higher when the prevailing level of inflation was higher or when the degrees of unionization and centralized bargaining were higher, while lower under a higher credibility of monetary policy. The effects of oil price shocks on core inflation and inflation expectations are consistent with their effects on wages.
Keywords:
Second-round effects; oil prices; wages; inflation; pass-through; monetary policy; impulse response.; oil price shock; inflation expectation; pass-through effect; oil price inflation; consumer price inflation; Unemployment rate; Nominal effective exchange rate; Europe; Global
Cover IMF Staff Country Reports
Republic of Lithuania: 2022 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. European Dept.
This 2022 Article IV Consultation with the Republic of Lithuania highlights the recent spike in global energy and food prices and persistent supply bottlenecks have compounded inflationary pressures, disproportionately hurting the poor. The authorities’ response to the energy crisis aims to limit economic disruptions, provide targeted support to the vulnerable, and allow for market price signals. Higher revenues from inflation allow the budget to accommodate pressures for higher social and defense spending in the short-term, but difficult tradeoffs await down the road. The banking system has ample capital and liquidity buffers to withstand a weakening economic environment or even greater shocks. Further efforts are needed to mitigate money laundering risks in the financial sector, particularly from the dynamic and growing fintech sector. A comprehensive carbon tax will be necessary to achieve the authorities’ emission reduction objectives for 2030. Structural reforms are necessary to ensure continued income convergence. The authorities need to address structural impediments by accelerating reforms in education and healthcare, and by closing gaps in the transportation infrastructure, and reducing information asymmetries that limit access to financing for small and medium enterprises.
Keywords:
potential GDP; wage-price spiral; price inflation; inflation development; foreign currency; Inflation; Energy prices; Loans; Wages; Real estate prices; Global; Western Europe