Abstract

GEM simulations have already been used to provide insights on a range of issues. In particular, they have been incorporated into the IMF staff’s analysis in the World Economic Outlook and other IMF work examining the impact of entry into European Monetary Union (EMU) on European Union (EU) accession candidates (Laxton and Pesenti, 2003) and energy issues in the United States (IMF, 2003b), as well as in contributions to academic conferences and journals. In many cases these efforts have been combined, so that work originally used for (say) the World Economic Outlook has generated academic papers, while work originally prepared for academic conferences has provided the basis for analysis to assist the staff. Indeed, such dual uses ensure policy relevance and professional rigor. On the other hand, like MULTIMOD, GEM is not used to generate the Fund’s forecasts. Rather, the World Economic Outlook exercise uses the expertise available on countries by aggregating projections from individual country desks.

GEM simulations have already been used to provide insights on a range of issues. In particular, they have been incorporated into the IMF staff’s analysis in the World Economic Outlook and other IMF work examining the impact of entry into European Monetary Union (EMU) on European Union (EU) accession candidates (Laxton and Pesenti, 2003) and energy issues in the United States (IMF, 2003b), as well as in contributions to academic conferences and journals. In many cases these efforts have been combined, so that work originally used for (say) the World Economic Outlook has generated academic papers, while work originally prepared for academic conferences has provided the basis for analysis to assist the staff. Indeed, such dual uses ensure policy relevance and professional rigor. On the other hand, like MULTIMOD, GEM is not used to generate the Fund’s forecasts. Rather, the World Economic Outlook exercise uses the expertise available on countries by aggregating projections from individual country desks.

This section discusses three such simulations, chosen to illustrate the value of GEM across a range of questions. Accordingly, each simulation focuses on a different type of shock and demonstrates a different model strength. The first explores the impact of structural reforms that are assumed to raise competition in euro area labor and product markets to U.S. levels and illustrates how the microeconomic foundations of the model allow GEM to tackle issues on which earlier models provided little insight. The second asks how monetary policy rules should differ between industrial countries and emerging market countries and illustrates how GEM can be used to evaluate the impact of policies in more sophisticated ways. The third examines the consequences of oil price hikes on industrial countries and illustrates how GEM’s flexible structure can be used to provide deeper analysis of an issue. These simulations do not exhaust the work using GEM. Other exercises using GEM, which are not discussed in this section, include an analysis of external developments in the United States in the late 1990s (Hunt and Rebucci, 2003) and the impact of industrial country exchange rate instability on emerging markets (IMF, 2003a).

Measuring the Benefits of Raising Euro Area Labor and Product Market Competition

Structural reforms are becoming an increasingly important element in Fund policy advice, as it has become clear that there is a close connection between macroeconomic policies and the underlying economic environment. While the issues differ across regions, in western Europe the focus has been on ways to increase competition in domestic markets. Indeed, European leaders at a number of recent summits have embraced this objective, most notably at Lisbon in 2001.

Greater competition in product and labor markets clearly benefits an economy through ensuring more efficient allocation of resources and making markets more flexible in the face of shocks. However, it has proved difficult to use macroeconomic models to provide quantitative assessments of these gains. This partly reflects difficulties in measuring such concepts as levels of competition or institutional quality, as well as the issue of how reduced-form relationships identified by regression analysis might change if policies are directed at improving them—another example of the Lucas critique.

Work using policy models loosely tied to theory has relied heavily on microeconomic studies, which provided estimates of how regulatory changes would affect a range of variables that were then incorporated exogenously in model simulations. A good example of such an approach is the 1997 OECD Report on Regulatory Reform (OECD, 1997). Detailed microeconomic studies were performed that estimated the benefits of comprehensive reform in five highly regulated industries representing around 20 percent of output in the United States, Japan, Germany, France, and the United Kingdom. The studies measured how such reforms would reduce prices of these goods, raise productivity in the sector, and affect employment. The aggregate effects across all five sectors were then fed into a macroeconomic model by exogenously changing labor efficiency, employment, prices, and (through the erosion of rent sharing) wages. The main lesson from these simulations was that if the gains in labor efficiency were not fully captured by higher wages in the affected sectors, modest additional increases in output could occur elsewhere in the economy. Focusing on the euro area, the results suggest that the initial increase in real GDP found in the microeconomic studies of 4 percent could rise by a further percentage point. However, the bulk of the effects derive from the initial microeconomic studies, with limited additional information coming from the macroeconomic model simulations.

GEM Simulations of the Benefits of Greater Euro Area Competition

GEM simulations increasing competition in euro area product and labor markets to U.S. levels reported in Bayoumi, Laxton, and Pesenti (2004) imply that such reforms would provide a wide range of benefits to the euro area and the rest of the world (see Table 3.1). In particular:

  • Euro area real GDP rises by 12½ percent, fueled by a 20 percent increase in the capital stock and an 8 percent increase in hours worked. About two-thirds of these benefits to output are attributable to product market reforms, and the remainder to labor markets.

  • The percentage rise in euro area consumption is only about two-thirds of the percentage increase in GDP, reflecting both the large rise in investment and the real depreciation of the euro as higher output in the euro area lowers the real exchange rate.

  • The rest of the world benefits, as the real depreciation of the euro makes consumers elsewhere richer and higher euro area demand increases imports from the rest of the world. In particular, foreign consumption rises by 1¼ percent, about one-sixth of the increase in the euro area.

  • The increases in welfare are substantial. Welfare rises by the equivalent of 2½ percent and 1¼ percent of steady-state consumption in the euro area and the rest of the world, respectively. Welfare rises less than consumption in the euro area because of higher hours worked, emphasizing the value of using a welfare-based measure of benefits as opposed to using (say) the increase in output or consumption.

  • Euro area wages and prices become more flexible. As an illustration, the sacrifice ratio—defined as the output cost of permanently lowering inflation by 1 percentage point—falls from two to under one-and-a-half. This makes it easier for the European Central Bank to use monetary policy to stabilize the cycle.

  • The increase in domestic output is relatively invariant when key parameters are changed (except that the impact of labor market reforms depends on the response of hours worked to movements in real wages), but the size of the spillovers to the rest of the world is quite sensitive to the chosen values for a number of important parameters, most notably the substitutability of home and foreign goods.

  • Dynamic simulations indicate that reforms increase investment rapidly, but the benefits to consumptions are more delayed (see Figure 3.1). After an initial boom funded from abroad, consumption falls below baseline for a time as investment booms and real interest rates rise before increasing as capacity rises. If the reforms are not fully credible, the consumption response becomes further elongated.

To explain the key linkages behind these results, it is useful to focus initially on product markets. Increased competition across firms raises desired output, thereby increasing the demand for investment and labor. There is an investment boom as it is less costly in the long run for firms to buy more capital than hire more labor, as capital can be produced while the supply of labor is less flexible. Higher output at home reduces local prices compared with their foreign counterparts, and this real depreciation boosts consumption abroad by making foreign consumers wealthier. In addition, domestic price stickiness is reduced as greater competition increases the loss to the firm from allowing prices to deviate from their desired level if prices were fully flexible.

More competitive labor markets produce similar effects, but with a larger impact on hours worked and a smaller effect on domestic output and international spillovers due to different microeconomic linkages. These differences emanate from the fact that labor reforms work by lowering real wages and raising hours worked while product market reforms affect output and final prices directly. Because the main impact is on labor markets, the effect on output is muted while lower real wages further diminish the international spillovers as the home country remains more competitive.

The simulation provides a number of policy conclusions. In particular, there are large domestic gains from reforms to increase competition in both product and labor markets, including by reducing the sacrifice ratio, and the rest of the world also benefits. However, the results indicate that advantages for local consumers come on stream only after a delay, particularly if the reform program is not fully credible. Such a pattern, which seems consistent with experience, may explain part of why such programs are difficult to initiate politically. These GEM simulations are simple to run, produce plausible benefits compared with earlier work, and avoid the need for expensive and complex microeconomic studies of the impact of specific reforms.

Table 3.1.

GEM Estimates of the Long-Run Effects of More Competition-Friendly Policies in the Euro Area

(Percent deviations from baseline)

article image
Source: Bayoumi, Laxton, and Pesenti (2004).

Percentage increase in terms of steady-state consumption.

Figure 3.1.
Figure 3.1.

Dynamic Effects of More Competition-Friendly Policies in the Euro Area (Anticipated and Perfectly Credible)

(Percent deviation from baseline)

Source: Bayoumi, Laxton, and Pesenti (2004).

In GEM, lowering a single parameter, namely the equilibrium markup of prices over marginal cost, can simulate the impact of increasing product market competition, with a parallel structure in labor markets. This illustrates the advantages of the strong microeconomic foundations of the model. In particular, GEM assumes an explicit industrial organization structure, namely, monopolistic competition. Firms use their monopolistic power to restrict output and increase profits, reducing welfare and generating a markup of prices over marginal cost. By decreasing producers’ market power, greater competition in goods markets reduces markups and boosts output as lower goods prices raise real wages and increase demand for products. The setup in the labor market is analogous except the boost to output comes from lower costs to firms. Increasing competition is thus equivalent to lowering the markup on prices and wages. Furthermore, it is possible to calibrate this parameter relatively easily as these markups have been estimated in the microeconomic literature.

Accordingly, a two-country version of GEM using a relatively streamlined structure (see Figure 2.2) was created comprising the euro area and the rest of the world, parameterized as the United States (Bayoumi, Laxton, and Pesenti, 2004). Based on cross-country empirical evidence for the 1980s and 1990s, economy-wide price and wage markups were set at 35 percent and 30 percent in the euro area, respectively, and 23 percent and 16 percent in the United States. Simulations lowering euro area markups to U.S. levels produced the following results (for more details, see Box 3.1):

  • Euro area output and welfare rises significantly (Table 3.1). Euro area real GDP rises by 12½ percent and hours worked by 8 percent. The increase in welfare is smaller but still notable, equivalent to a 2½ percent rise in steady-state consumption as some of the benefits from greater consumption are partly offset by more work, demonstrating the value to using welfare-based criteria to evaluate policy changes. About two-thirds of these increases in output and welfare are attributable to product market reforms, and the remainder to more competitive labor markets. These benefits are relatively invariant to alternative values of deep parameters.

  • Reforms increase investment rapidly, but the benefits to consumption are more delayed (Figure 3.1). By diverting resources, the investment boom generates a significant lag between the implementation of reforms and a sustained increase in consumption, particularly if the reforms are not fully credible.

  • There are positive spillovers to the rest of the world. The need to sell the increased output leads to a real depreciation of the euro, improving the terms of trade of the rest of the world. In the base case simulation, consumption in the rest of the world rises by about 1¼ percent. As labor effort is largely unaffected, welfare also rises by the equivalent of 1¼ percent of steady-state consumption. The size of these spillovers is sensitive to the assumed values of a range of deep parameters.

  • Structural reforms ease the task of monetary policymakers in the euro area. Greater competition, particularly in labor markets, reduces nominal rigidities in the euro area. This greater nominal flexibility reduces the inflationary costs of stabilizing output thereby making it easier to use monetary policy in a countercyclical manner.

Should Monetary Policy Rules Differ Between Industrial Countries and Emerging Market Countries?

Ever since the rational expectations revolution, monetary policy has been analyzed in terms of the impact of alternative rules rather than the impact of discretionary responses to particular circumstances. Reflecting the importance attached to the public’s assumptions about future policies, rational expectation models create an important distinction between underlying policy rules and discretionary deviations from this path. The long-term impact of monetary policy is best summarized by comparing alternative rules that are fully understood by the public.

The most famous of these policy rules was introduced in the 1990s by John Taylor, who argued that a reaction function in which the short-term interest rate responded to movements of inflation from a desired value and to changes in the output gap (that is, the difference between actual output and its underlying trend) was a good summary of how U.S. monetary policy had been conducted (Taylor, 1993). This “Taylor rule” and variations that (for example) replace current inflation by expected future inflation and/or add a term to take account of the fact that central banks appear to smooth interest rate changes continue to form the basis for most analysis of monetary policy under flexible exchange rates.

Taylor also provided the framework for assessing alternative monetary rules based on the volatility of inflation and output. Recognizing that the primary objective of monetary policy is to provide an anchor for inflation expectations, he argued it is crucial for the central bank to react sufficiently strongly to inflationary developments so as to raise real interest rates and deflate the economy. A secondary objective was to provide support to the real economy by reacting to cyclical developments. Within these constraints, the job of the monetary policymakers was twofold. First, to identify the most efficient monetary rules, in the sense that it provided the lowest level of instability in (say) inflation for any given level of output volatility—the so-called Taylor efficiency frontier (Figure 3.2). Second, choosing the preferred and most robust rule from this frontier given their own preferences between these two sources of macroeconomic instability.

Figure 3.2.
Figure 3.2.

Taylor Trade-Off in Monetary Policy Analysis

This framework has been the workhorse for the large literature on monetary analysis for the last decade. The vast majority of the analysis has been on industrial countries, and even within this most work has focused on closed economy models of the United States. It has encompassed everything from three-equation representations of monetary policy to large models such as the Federal Reserve’s FRB-US. In addition to examining the best options for a given model, there has also been work on which rules provide robust outcomes when parameters are uncertain or the analysis incorporates models with different theoretical structures. One general conclusion from this literature is that in large countries the monetary authorities should respond to both inflation and the output gap. Another is that the monetary authorities should put more weight on inflation and less weight on the output gap as the country becomes more open to trade, but that there is little benefit from including the exchange rate in the policy rule. Finally, there appear to be significant gains from smoothing interest rate changes over time, consistent with empirical evidence that policymakers indulge in this practice.

GEM was used to examine how monetary rules in small open emerging market countries might differ from those for large industrial countries (Laxton and Pesenti, 2003). That paper illustrates how the model can extend existing analyses through better measurement of concepts and benefits.2 A two-country version of GEM was created consisting of the euro area and the Czech Republic, with the euro area generating 95 percent of total GDP. To capture the subtleties of the Czech Republic’s relationship with the euro area, which include importing components and reex-porting the finished product plus a trend appreciation of the real exchange rate attributed at least in part to Balassa-Samuelson effects, the model included trade in intermediate goods, traded and non-traded sectors, and distribution (see Figure 2.3).

Simulations to examine how these rules performed in the face of random shocks broadly corresponding to the historical record were then performed under a range of alternative monetary policy rules for the Czech Republic and the euro area. The results (discussed in more detail in Box 3.2) are as follows:

  • GEM broadly reproduces earlier results for the euro area using a Taylor framework. This is comforting as it implies that despite its strong theoretical structure GEM is able to fit existing stylized facts for industrial countries in this well-researched field.

  • The optimal monetary policy for the Czech Republic depends crucially on how potential output is measured. Using the conventional assumption that potential output is a slow-moving series, policymakers should only respond to inflation, and should ignore the output gap. This is mainly because of the greater importance of aggregate supply shocks in emerging market countries, disturbances to which such a measure of the output gap provides a perverse signal for monetary policy. The output gap, however, becomes a much more useful indicator if the impact of aggregate supply shocks on underlying supply potential is immediately incorporated into the measured output gap (as can be done in GEM but not in earlier models).

Using GEM to Analyze Monetary Policy Rules

A two-country version of GEM was created comprising the euro area and the Czech Republic, with the euro area generating 95 percent of total GDP (see Laxton and Pesenti, 2003). To capture the subtleties of the Czech Republic’s relationship with the euro area, which include importing components and reexporting the finished product as well as a trend appreciation attributed at least in part to Balassa-Samuelson effects, the model included trade in intermediate goods, traded and nontraded sectors, and distribution (see Figure 2.3). For the euro area, which approximates a closed economy, the trade-offs between alternative policy rules corresponded closely to those found by others using earlier large models (the figure illustrates the trade-off coming from GEM). This is comforting, as it implies that despite its strong theoretical structure GEM is able to fit existing stylized facts for industrial countries in this well-researched field.

The main focus of the GEM work, however, was examining policy rules for small emerging market countries that are extremely open to trade, such as the Czech Republic. This is an underresearched area that GEM is particularly well designed to examine, as differences in underlying economic structure can affect monetary responses through the unified theoretical structure. As can be seen from the figure below, a rule that is robust for a large and relatively closed economy such as the euro area produces a high level of inflation variability in such an emerging market country. Further analysis indicates that a more robust rule for the emerging market country involves a greater focus on inflation. Hence, the Czech National Bank should put a much higher weight in its rule to responding to inflation and a negligible weight on the output gap (and, it turns out, the exchange rate). This work was recently extended to examine the macroeconomic effects of EU accession countries entering EMU (see Schadler and others, 2004). The paper concludes that adoption of the euro might be expected to have some macroeconomic costs compared with a well-designed monetary framework, but these effects have to be set against the microeconomic benefits associated with a single currency.

The results for the Czech Republic represent a magnified version of the conclusion from the existing literature that more open industrial economies should have rules that focus more on inflation. This amplification in GEM comes from two important differences in economic structure between the Czech Republic and industrial countries. First, emerging markets such as the Czech Republic have high levels of wage-price flexibility, so that there is less need for monetary policy to respond to aggregate demand shocks that move output temporarily from potential. Second, such countries are subject to a higher proportion of aggregate supply shocks. As these shocks have consequences for the long-term path of output, inflation gives a better signal to the monetary authorities than conventional measures of the output gap that assume potential output adjusts slowly.

Further analysis using GEM indicates that Czech monetary policy can be improved by using a more sophisticated measure of the output gap. The theoretical structure in GEM allows the replacement of a conventional slow-moving measure of potential output by the level of output that would obtain if prices were fully flexible but adjustment costs remain on real variables such as the capital stock (this would be much more difficult in older models, as their structure does not provide a clear distinction between real and nominal rigidities). GEM simulations indicate that if the Czech monetary authorities could calculate this more sophisticated measure of the output gap then they should include the output gap in the monetary rule. Two policy messages come out of this exercise. The first is the importance of monetary policymakers rapidly taking a view on the sources of disturbances to the economy, particularly in emerging market countries that are more subject to frequent supply disturbances. Second, because estimating the consequences of shocks on potential output is inherently relatively uncertain, small, open economies subject to large supply shocks should generally have monetary rules that focus more on changes in inflation.

UFG2

Policy Rules for Large Industrial and Emerging Market Countries

Source: Laxton and Pesenti (2003).

These results emphasize the importance of monetary policymakers rapidly taking a view on the sources of disturbances to the economy, particularly in emerging market countries that are often more subject to supply disturbances. That said, because estimating the consequences of shocks on potential output is inherently uncertain, small, open economies subject to large supply shocks should generally put a higher weight on inflation in evaluating the monetary stance than larger, more closed economies where aggregate demand disturbances are more prevalent.

Subsequent work using GEM has examined the welfare-maximizing monetary rule. Unfortunately, the computation burdens implied by the needed solution techniques have constrained this analysis to a single country that is closed to trade. Preliminary results suggest that consumers’ utility is maximized when the monetary authority responds to inflation and real activity, as in the conventional Taylor rule. However, they also suggest that policymakers should focus mainly on the rate of change of the output gap rather than its level because of the uncertainties associated with measuring the level of potential output. Hence, this approach has significant implications for the form of the monetary rule. The results also indicate that there are significant welfare benefits to adopting a sound monetary framework, in contrast to earlier work using models with fewer types of distortions, although the gains are smaller than those typically found from substantive changes in structural policies (see also Galí, Gertler, and López-Salido, 2002).

The Impact of Higher Oil Prices

Oil prices continue to be a significant source of volatility for the global economy. Sustained movements in the dollar oil price of 10 percent or more, which trigger a new baseline for Fund analysis, remain relatively common over short periods of time. New baselines have resulted in last-minute changes to the forecasts contained in the World Economic Outlook on several occasions in recent years, as well as affecting many other aspects of the Fund’s work, including program design. Oil is the only commodity to have such a systemic impact, although other commodities are important for individual countries. Indeed, while the dependence of industrial countries on oil has diminished somewhat as manufacturing sectors have shrunk in proportion to the rest of the economy, the opposite has occurred in many emerging market countries. In short, understanding the impact of changes in oil prices on activity is a key input into multilateral surveillance.

The Research Department published a study in 2000 of the impact of oil prices on the global economy, which included ready reckoners of the impact of a permanent $5 a barrel hike in oil prices on activity across a range of industrial and developing countries after a year (IMF, 2000). The results for emerging markets, poor countries, and oil producers came from the inputs of country desks, while those for the industrial countries were based on MULTIMOD simulations. These simulations incorporated the effects of oil price hikes through a number of channels. The impact on external balances was fully integrated in the model, being based on data on oil trade, which is identified separately in the MULTIMOD database. The impact on potential output, however, was implemented through changes to total factor productivity. As shown in Table 3.2, the results suggested that a permanent $5 hike in oil prices would lower output after a year by 0.4 percent in the United States and euro area and 0.2 percent in Japan and other industrial countries, and would be accompanied by significant effects on inflation and the trade balance.

Table 3.2.

MULTIMOD: Impact of a Permanent $5 a Barrel Increase in Oil Prices After One Year

(In percent)

article image
Source: IMF (2000).

Percentage points of GDP.

The GEM simulations of oil price hikes illustrate the advantages of having a flexible model structure. Rather than approximate the effect of an oil price hike through altering the level of productivity, a commodity submodel was constructed that is fully integrated into the rest of GEM but can be turned on and off depending on the issue at hand. The commodity (hereafter assumed to be oil) is produced using labor, capital, and land, a separate factor of production that explains why production occurs in some places and not others. Oil is then traded between countries and consumed by firms and individuals, so oil disturbances affect producers and consumers. Particular attention was placed on incorporating important elements of the global oil market into the commodity model. The market power of the Organization of the Petroleum Exporting Countries (OPEC) was taken into account by assuming that oil producers are monopolistic competitors, so that oil price hikes can be triggered by an increase in market power owing to greater compliance of individual OPEC members with production quotas. The limited pass-through of world oil prices to domestic prices due to specific taxes and other costs is modeled by assuming that oil passes through a distribution sector before being used by firms or consumers. Finally, while the long-run demand for oil and gas is quite sensitive to the real price in the long term, it is assumed to be extremely costly for firms to adjust their oil use in the short run. Calibration used earlier analysis of the oil market, in particular the long-term consequences of the oil price hikes of 1974 and 1979.

The commodity model has been used to repeat the earlier ready-reckoner exercise using GEM’s more integrated theoretical structure, as well as to produce simulations of the impact of oil price hikes on U.S. growth reported in last year’s U.S. Article IV “Selected Issues” paper (IMF, 2003b). Figure 3.3 suggests that a permanent oil price hike of 20 percent (approximately equal to the $5 hike used earlier) would reduce real output by some 0.4 percent for the United States and euro area and about half of this for Japan in a version of GEM involving the rest of the world and the United States, euro area, Japan, the United Kingdom, and Canada, respectively. These differences across countries reflect variations in oil and gas production, trade, and the oil and gas intensity of production. In particular, the relatively large output losses in North America and small output losses in Japan reflect the latter phenomenon. These output effects are similar to those produced using extensive judgmental changes in MULTIMOD, but other responses are quite different. For example, the inflationary response is lower in the GEM simulations, consistent with the limited impact of oil price hikes on inflation in recent years, while the impact on the current account is larger, reflecting firms’ inability to substitute away from oil in the short run.

Figure 3.3.
Figure 3.3.

GEM: Impact of a Permanent 20 Percent Oil Price Hike After One Year

Source: IMF staff calculations.

Additional analysis using GEM indicates that the impact on output decreases rapidly as the price shock becomes more temporary, while the impact on responses of the current account and inflation is less marked. More specifically, when it is assumed that half of the initial shock to oil prices is eliminated after a year, the impact on output is about one-fifth that of a permanent disturbance, reflecting the rich theoretical structure. In particular, producers and consumers feel less pressure to adjust knowing that the impact is not as permanent (Figure 3.4). The impact on inflation, however, is similar across the two experiments, as it is dominated by the pass-through of the initial shock to oil prices into the consumer price index (CPI). The deterioration in the current account is somewhere between these two extremes, reflecting the fact that oil prices are significantly lower at the end of the first year in the temporary disturbance compared with the permanent one. The smaller impact on real GDP helps to explain why temporary spikes in oil prices, such as those that occurred over the 1990 Gulf war, appear to have had relatively little impact on global activity.

Figure 3.4.
Figure 3.4.

GEM: Impact of a Permanent and Temporary 20 Percent Oil Price Hike After One Year

(Temporary hike assumes half of oil price increase dissipates after one year)

Source: IMF staff calculations.

Thus far the model has been used to assess the impact of oil price hikes on industrial countries, in part because these effects have been the most heavily examined in other work. However, the framework can clearly be used to examine the consequences of changes in oil or other commodity prices for other types of countries. In particular, the model can be used to look at the impact of oil or other commodity market disturbances on developing country producers.

Cited By

A New International Macroeconomic Model
  • View in gallery

    Dynamic Effects of More Competition-Friendly Policies in the Euro Area (Anticipated and Perfectly Credible)

    (Percent deviation from baseline)

  • View in gallery

    Taylor Trade-Off in Monetary Policy Analysis

  • View in gallery

    Policy Rules for Large Industrial and Emerging Market Countries

  • View in gallery

    GEM: Impact of a Permanent 20 Percent Oil Price Hike After One Year

  • View in gallery

    GEM: Impact of a Permanent and Temporary 20 Percent Oil Price Hike After One Year

    (Temporary hike assumes half of oil price increase dissipates after one year)

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