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Foreign Exchange Intervention and the Dutch Disease
We study the optimal foreign exchange (FX) intervention policy in response to a positive terms of trade shock and associated Dutch disease episode in a small open economy model. We find that during a Dutch disease episode tradable production drops below the socially optimal level, resulting in lower welfare under learningby- doing (LBD) externalities. FX reserves accumulation improves welfare by preventing a large appreciation of the real exchange rate and by inducing an efficient reallocation between the tradable and non-tradable sectors. For an empirically plausible parametrization of LBD externalities, the model predicts that in response to a 10 percent increase in commodity prices FX reserves should increase by 1.5 percent of GDP. We also find that the welfare gains from optimally using FX reserves are twice as high as the gains from relying only on monetary policy. These results suggest that FX intervention is a beneficial policy to counteract the loss of competitiveness during a Dutch disease episode.
EMDE Central Bank Interventions During COVID-19 to Support Market Functioning
This paper examines emerging market and developing economy (EMDE) central bank interventions to maintain financial stability during the COVID-19 pandemic. Through empirical analysis and case study reviews, it identifies lessons for designing future programs to address challenges faced in EMDEs, including less-developed financial markets and lower levels of institutional credibility. The focus is on the functioning of the financial markets that are key to maintaining financial stability—money, securities, and FX funding markets. Several lessons emerge, including: (i) objectives should be well-specified and communicated to facilitate eventual exit; (ii) intervention triggers should prioritiz...
Education Policy Strategies Today and Tomorrow Around the "Mare Balticum"
Knowledge and education are key factors for a successful future in modern, globalised times. This applies especially to the resource-poor Baltic Sea region and its small and medium sized enterprises. Without excellent qualified staff and executives they cannot compete on a global scale. The authors of this book - scientists, entrepreneurs and journalists - address the main problems of our education systems, ranging from schools to vocational training and universities. But not only do they analyse these diverse systems but also develop strategies for successfully meeting the challenges ahead of us.
Jamaica
Jamaica has built a strong track record of investing in institutions and prioritizing macroeconomic stability. This aided the country to adapt to the difficult global environment of the past few years. The authorities provided targeted support to the economy during the pandemic but promptly scaled it back as conditions normalized. Similarly, in the wake of the war in Ukraine, domestic food and energy prices were left to adjust to shifts in international markets while targeted support was provided to the poor. The economy is expected to continue its post-COVID recovery, with inflation returning to the central bank’s target range by end-2023. The outlook is subject to downside risks from potential new COVID waves, higher commodity prices, a global slowdown, and tighter than expected global financial conditions.
Young Firms and Monetary Policy Transmission
We investigate the role of business dynamism in the transmission of monetary policy by exploitingthe variation in firm demographics across U.S. states. Using local projections, we find that a larger fraction of young firms significantly mutes the effects of monetary policy on the labor market and personal income over the medium term. The firm entry rate and the employment share of young firms are key factors underpinning these results, which are robust to a battery of robustness tests. We develop a heterogeneous-firm model with age-dependent financial frictions that rationalizes the empirical evidence.
Operational Resilience in Digital Payments: Experiences and Issues
Major operational incidents in payment systems suggest the need to improve their resiliency. Meanwhile, as payment infrastructures become more digitalized, integrated, and interdependent, they require an even higher degree of resilience. Moreover, risks that could trigger major disruptions have become more acute given the rise in power outages, cyber incidents, and natural disasters. International experiences suggest the need to strengthen reliability objectives, redundancies, assessment of critical service providers, endpoint security, and alternative arrangements
How Big are Fiscal Multipliers in Latin America?
This paper uses the strategy and data of Blanchard and Perotti (BP) to identify fiscal shocks and estimate fiscal multipliers for the United States. With these results, it computes the cumulative multiplier of Ramey and Zubairy (2018), now common in the literature. It finds that, contrary to the peak and through multipliers reported by BP, the cumulative tax multiplier is much larger than the cumulative spending one. Hence, the conclusions depend on the definition of multiplier. This methodology is also used to estimate the effects of fiscal shocks on economic activity in eight Latin American countries. The results suggest that the fiscal multipliers vary significantly across countries, and in some cases multipliers are larger than previously estimated.
Guidance Note for Surveillance Under Article IV Consultations
This Guidance Note provides guidance to country teams for surveillance under Article IV consultations. It supersedes the 2015 Guidance Note and its supplement. Fund surveillance continuously adapts to the evolving economic and financial landscape. The 2021 Comprehensive Surveillance Review (CSR) identified priorities for Fund surveillance, both in terms of content and modalities. This Guidance Note covers: Scope and requirements: The note lays out the coverage of, and formal requirements for, Article IV consultations and staff reports. It also outlines best practices aimed at enhancing the traction of Fund analysis and policy advice. Priorities and focus. The note reflects the four surveilla...
Georgia: Financial System Stability Assessment
A recovery from the Covid-19 pandemic now underway in Georgia has benefited from a recent pickup in external demand and substantial fiscal support. Significant exchange rate depreciation, global commodity price increases and supply constraints have contributed to inflationary pressures and provided impetus for the authorities to start tightening monetary policy during 2021. Credit growth slowed during the pandemic but has since picked up again. Household and firm indebtedness is relatively high reflecting rapid credit growth in recent years. Banks face elevated credit risks as they carry high exposure to unhedged borrowers in foreign currency, some of whom are facing debt-servicing difficulties due to the pandemic.
