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The Monetary Geography of Africa
Africa is working toward the goal of creating a common currency that would serve as a symbol of African unity. The advantages of a common currency include lower transaction costs, increased stability, and greater insulation of central banks from pressures to provide monetary financing. Disadvantages relate to asymmetries among countries, especially in their terms of trade and in the degree of fiscal discipline. More disciplined countries will not want to form a union with countries whose excessive spending puts upward pressure on the central bank's monetary expansion. In T he Monetary Geography of Africa, Paul Masson and Catherine Pattillo review the history of monetary arrangements on the c...
A Model-based Fiscal Taylor Rule and a Toolkit to Assess the Fiscal Stance
This paper presents a model-based fiscal Taylor rule and a toolkit to assess the fiscal stance, defined as the change in the structural primary balance. This is built on the normative buffer-stock model of the government (Fournier, 2019) which includes key channels like hysteresis, cycle-dependent multipliers and a risk premium. A simple fiscal Taylor rule prescribes the fiscal stance as a function of past government debt, past output gap and the past structural primary balance. Applications suggest several advanced economies could have better managed their fiscal stance over the last 20 years. Simulations provide fiscal stance recommendations over the medium-term.
Monetary Policy in a Developing Country
The transmission of monetary policy to credit aggregates and the real economy can be impaired by weaknesses in the contracting environment, shallow financial markets, and a concentrated banking system. We empirically assess the bank lending channel in Uganda during 2010–2014 using a supervisory dataset of loan applications and granted loans. Our analysis focuses on a short period during which the policy rate rose by 1,000 basis points and then came down by 1,200 basis points. We find that an increase in interest rates reduces the supply of bank credit both on the extensive and intensive margins, and there is significant pass-through to retail lending rates. We document a strong bank balance sheet channel, as the lending behavior of banks with high capital and liquidity is different from that of banks with low capital and liquidity. Finally, we show the impact of monetary policy on real activity across districts depends on banking sector conditions. Overall, our results indicate significant real effects of the bank lending channel in developing countries.
This Time Is Different
An empirical investigation of financial crises during the last 800 years.
Bailing Out the People? When Private Debt Becomes Public
This paper documents a form of private sector bailout that is much more common (and yet unnoticed) than the typical bank bailout. Building on the newly-created Global Debt Database, we show that excess private debt systematically turns into higher public debt, regardless of whether the credit boom resulted in a crisis or a more orderly deleveraging process. This debt migration operates mainly through growth rather than explicit bailouts: private deleveraging weighs on activity, prompting a countercyclical government response to support economic activity. Ultimately, whether this debt substitution results in a net increase or a net decline of overall indebtedness in the economy depends on the extent of the growth slowdown during the deleveraging spell. These findings suggest that markets and policymakers should move away from looking at private and sovereign debt in silos and pay closer attention to the total stock of debt in the economy, as the line between the two tends to become blurry.
IMF Macroeconomic Research on Low-Income Countries
Summarizes the for ward-looking analytical work program on macroeconomic issues related to the Poverty Reduction Strategy Paper approach. The program is evolving through a process that began with a technical workshop; participants from low-income countries, donors, academia, and civil society drafted guidance on selected issues and identified priority research topics. Partners, policymakers, and economic scholars are encouraged to share their perspectives and findings through respective team leaders, whose e-mail addresses are provided. The publication also summarizes IMF analytical work, and contains a bibliography of nearly 1,000 papers.
Post-Stabilization Economics in Sub-Saharan Africa
Mozambique is an economic success story in sub-Saharan Africa (SSA). Its remarkable achievements offer valuable lessons to other low-income countries in a post-stabilization economic phase, including how they can efficiently manage a scaling up of foreign aid aimed at poverty reduction. Of special interest to other sub-Saharan countries are the book's discussions of Mozambique's progress toward consolidating macroeconomic and financial stability, and the challenges it faces in ensuring long-term sustainability, creating a virtuous cycle of natural resource use, and implementing second-generation structural reforms to sustain its growth. This book also provides a summary of the most recent research on issues related to post-stabilization economics in SSA.
The Fiscal State-Dependent Effects of Capital Income Tax Cuts
Using the post-WWII data of U.S. federal corporate income tax changes, within a Smooth Transition VAR, this paper finds that the output effect of capital income tax cuts is government debt-dependent: it is less expansionary when debt is high than when it is low. To explore the mechanisms that can drive this fiscal state-dependent tax effect, the paper uses a DSGE model with regime-switching fiscal policy and finds that a capital income tax cut is stimulative to the extent that it is unlikely to result in a future fiscal adjustment. As government debt increases to a sufficiently high level, the probability of future fiscal adjustments starts rising, and the expansionary effects of a capital income tax cut can diminish substantially, whether the expected adjustments are through a policy reversal or a consumption tax increase. Also, a capital income tax cut need not always have large revenue feedback effects as suggested in the literature.
Global Rebalancing
While global rebalancing will mainly involve structural realignment among major advanced and emerging market economies, it could have significant impact on low-income countries (LICs). Simulations using a global general equilibrium model show that a more balanced global economy would tend to improve the current account balance in LICs with limited impact on domestic output. However, there could be adverse terms of trade effects on some LICs as the prices of manufactured goods rise. On the other hand, such prices increases could provide an impetus to export diversification in many LICs, raising growth in the long run. The output and terms of trade effects would be significantly amplified if structural adjustment is impeded by factor immobility and other rigidities.
Dictators and Democracy in African Development
This book argues that the structure of the policy-making process in Nigeria explains variations in government performance better than other commonly cited factors.
