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Iceland: Selected Issues
Author:
International Monetary Fund. European Dept.
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Series:
IMF Staff Country Reports
Volume/Issue:
Volume 2016: Issue 180
Language:
English
Publication Date:
22 Jun 2016
DOI:
https://doi.org/10.5089/9781498313551.002
ISBN:
9781498313551
ISSN:
1934-7685
Pages:
23
Keywords:
ISCR; CR; monetary policy; cost; GDP; monetary policy effectiveness; health expenditure; expenditure pressure points; monetary policy independence; monetary policy stance; interest cost; Capital flows; Capital inflows; Macroprudential policy instruments; Macroprudential policy; Global; Europe
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This paper examines Iceland’s expenditure policy, especially five expenditure pressure points, as well as capital flows and monetary policy effectiveness in small open economies. The postcrisis fiscal adjustment demanded painful choices, with spending on healthcare, education, and investment suffering cuts in real terms. While expenditures in these areas have rebounded more recently, there is a room for further decompression. Using quarterly panel data for 18 advanced and emerging small open economies during 2002–15, it finds that monetary policy is focused on inflation developments, but also that domestic interest rates affect capital flows, raising concerns about a reinforcing loop between monetary policy and capital flows.
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Cover IMF Staff Country Reports
IMF Staff Country Reports
ISSN:
1934-7685
Publisher:
International Monetary Fund