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Reviving the Competitive Storage Model
We revive in this paper the empirical relevance of the competitive storage model by taking a holistic approach to food commodity prices. We augment the seminal Deaton and Laroque (1992, 1996) model by incorporating more comprehensive and realistic supply and demand factors: output and demand trends, shocks to the yield, and time-varying interest rates. While the computational burden increases exponentially, the augmented model succeeds in replicating all four key patterns of food commodity prices. Our simulation and comparative statics also show that (i) the long-run declining trend of food prices may come to a halt or even reverse due to the shifting balance between supply and demand; (ii) short-run price fluctuations are mainly attributable to sizeable, though low-probability, shocks to output such as inclement weather; and (iii) the impact of monetary policy, though small in normal times, is nonlinear and asymmetric, and can become large if the real rate passes a certain threshold.
The Composition of Capital Flows
Over the past decade, South Africa has attracted relatively little foreign direct investment (FDI), but considerable amounts of portfolio inflows. In this context, the objective of the paper is twofold: to identify the determinants of the level and composition of capital flows to emerging markets and to draw policy conclusions for South Africa. We estimate a dynamic panel for up to 81 emerging markets using GMM (Generalized Method of Moments) techniques. The results suggest that further trade and capital control liberalization would increase the share of FDI. Additionally, a reduction in exchange rate volatility would affect the composition of capital flows in favor of FDI.
Identifying Structural Reform Gaps in Emerging Europe, the Caucasus, and Central Asia
Using data from the World Economic Forum’s Global Competitiveness Report as an example, this paper compares structural indicators for 25 countries in Emerging Europe, the Caucasus, and Central Asia with a generic country with similar charactersitics that is 40 percent richer as well as a country with the average EU income. This comparison suggests that improvements will be particularly crucial in the areas of institutions, financial market development, infrastructure, goods and labor market efficiency and areas related to innovation. For the generally more ambitious goal of reaching average EU income, the reform needs are correspondingly larger. The methodology focuses on (approximate) comparisons between countries and does not try to establish the link between structural reforms and growth. While we test for changes in empirical specifications, caveats relate to the quality of structural indicators, possible non-linearities, and reform complementarities. The approach can be applied to other indicators and at a more granular level.
Monetary Policy Is Not Always Systematic and Data-Driven: Evidence from the Yield Curve
Does monetary policy react systematically to macroeconomic innovations? In a sample of 16 countries – operating under various monetary regimes – we find that monetary policy decisions, as expressed in yield curve movements, do react to macroeconomic innovations and these reactions reflect the monetary policy regime. While we find evidence of the primacy of the price stability objective in the inflation targeting countries, links to inflation and the output gap are generally weaker and less systematic in money-targeting and multiple-objective countries.
New Partnership for Africa's Development
Adopted in 2001, the New Partnership for Africa’s Development (NEPAD) represents a new vision to place African countries on a path toward poverty reduction, sustainable growth, and full integration in the world economy. This conference volume includes papers selected from a high-level seminar in December 2002 held in Dakar, Senegal, organized by the IMF Institute in the context of the program of the Joint Africa Institute (JAI). The papers focus on the challenges confronting NEPAD in reducing poverty, promoting trade, attracting capital flows, and effecting institutional reforms.
The Game of Anchors
Belarus experienced a sequence of currency crises during 2009-2014. Our empirical results, based on a structural econometric model, suggest that the activist wage policy and extensive state program lending (SPL) conflicted with the tightly managed exchange rate regime and suppressed monetary policy transmission. This created conditions for the unusually frequent crises. At the current juncture, refocusing monetary policy from exchange rate to inflation would help to avoid disorderly external adjustments. The government should abandon wage targets and phase out SPL to remove the underlying source of the imbalances and ensure lasting stabilization.
Taming Financial Development to Reduce Crises
This paper assesses whether and how financial development triggers the occurrence of banking crises. It builds on a database that includes financial development as well as financial access, depth and efficiency for almost 100 countries. Through estimation of a dynamic logit panel model, it appears that financial development, from an institutional dimension and to a lesser extent from a market dimension, triggers financial instability within a one- to two-year horizon. Additionally, whereas financial access is destabilizing for advanced countries, it is stabilizing for emerging and low income ones. Both results have important implications for macroprudential policies and financial regulations.
Exchange Rate Volatility Under Peg
This paper assesses the role of trade patterns in shaping the volatility of the effective exchange rate under two alternative peg regimes: a hard peg to a single currency and a peg to a basket of currencies. I link the changes in the nominal effective exchange rate of a pegged currency to the fluctuations of its anchor vis-a-vis other major currencies, with an emphasis on the dynamics of trade patterns. In an application to the WAEMU (West African Economic and Monetary Union), I find that the nominal effective exchange rate of the union was twice as volatile under the hard peg to the euro as it would have been under a hypothetical basket peg over the past decade. This result was driven by the substantial shifts that occurred in WAEMU trade patterns, away from euro area countries and toward the ?"BICs" (Brazil, India, and China). These findings suggest that policymakers should pay as much attention to the type of peg as to pegging in itself, with a particular focus on the dynamics of trade patterns.
The New Partnership for Africa's Development (NEPAD) Opportunities and Challenges
This paper reviews major issues involved in achieving the objectives of the New Partnership for Africa's Development (NEPAD). Using a simple framework for evaluation, the analysis highlights considerations relevant to policymakers in the areas of poverty reduction, macroeconomic policies, trade promotion, attracting capital flows, and governance and institutional reforms. The analysis also identifies risks involved in achieving NEPAD's objectives. To minimize these risks, it will be important to make some goals more operational, to further broaden and deepen stakeholder participation, to establish a sound basis for monitoring progress, to prepare contingency plans, and to harmonize the role of regional institutions with NEPAD initiatives.
Global Economic Prospects 2010
'Global Economic Prospects 2010' presents the World Bank’s latest short-term forecasts and presents evidence that the financial boom played a critical role in the growth boom experienced by developing countries between 2003 and 2007.
