Ales Bulir

International Monetary Fund · IMF-Singapore Training Institute

Does monetary policy react systematically to macroeconomic innovations in emerging and low-income countries? And do such systematic responses vary across monetary policy regimes? 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 macroec...

usiness cycle, Fiscal policy, Cambodia, Forecasting, Simulation, Debt management. Macroeconomic management in many developing countries is often heavily dependent on fiscal policies. This paper develops a semi-structural macro-fiscal model for simulating and forecasting macroeconomic policies in Cambodia. The model is calibrated to capture key char...

We use the Christensen, Diebold, and Rudebusch (2011) representation of the yield curve to test the functioning of the interest rate transmission mechanism along the yield curve based on government paper in advanced, emerging market, and low-income countries. We find a robust link from the policy and short-term interbank rates to the longer-term bo...

The paper describes a semistructural macrofiscal approach to simulating and forecasting macroeconomic policies. Our canonical model is adapted to Cambodia and we demonstrate its application with an illustrative scenario of macroeconomic effects of the Covid-19 pandemic. Complemented with near-term forecasting tools and expert judgment, the dynamics...

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 pr...

We study whether increased clarity of central bank reports on monetary policy can reduce volatility of returns in financial markets. We measure clarity of reports by the Czech National Bank, the European Central Bank, the Bank of England, and Sveriges Riksbank using the Flesch-Kincaid grade level. In contrast to much of the recent literature, we fi...

We offer a novel methodology for assessing the quality of central bank monetary policy reports. We evaluate their economic content by comparing verbally reported inflation factors with factors identified from a simple new Keynesian model. Positive correlations indicate that the reported inflation factors were similar to the model-identified ones, m...

We use two alternative representations of the yield curve to test the functioning of the interest rate transmission mechanism along the yield curve based on government paper in a sample of emerging market and low-income countries. We find a robust link from shortterm policy and interbank rates to longer-term bond yields. Two policy implications eme...

We study whether clarity of central bank inflation reports affects return volatility in financial markets. We measure clarity of reports by the Czech National Bank, the European Central Bank, the Bank of England, and Sveriges Riksbank using the Flesch-Kincaid grade level, a standard readability measure. We find some evidence, mainly for the euro ar...

Experts analyze the recent emphasis on central communication as an additional policy and accountability device. In recent years central bankers have placed new emphasis on communication with financial markets and the general public. They have done this not only through the traditional channel of monetary policy pronouncements but also by increasing...

The article presents a novel methodology for measuring the clarity of central bank communication using content analysis, illustrating the methodology with the case of the European Central Bank (ECB). The analysis identifies the ECB's written communication as clear in about 85–95% of instances, which is comparable with, or better than, similar resul...

This paper examines whether the clarity of central bank communication about inflation varies with the economic environment. Using readability statistics and content analysis, we study the clarity of communication on the inflation outlook by seven central banks across three continents during the recent decade. We uncover significant and persistent d...

The Great Recession affected export and import patterns in our sample of new EU member countries, and these changes, coupled with a more volatile external environment, have a profound impact on our estimates of real exchange rate misalignments and projections of sustainable real exchange rates. We find that real misalignments in several countries w...

This paper examines whether the clarity of central bank communication about inflation has changed with the economic environment. We use readability statistics and content analysis to study the clarity of communication on the inflation outlook by seven central banks between 1997 and 2010. Overall, we find no strong indications that central banks wer...

The effects of debt relief on incentives to accumulate debt, consume, and invest are an important concern for donors and recipients. Using a dynamic stochastic general equilibrium model of a small open economy with a minimum consumption requirement and an endogenous relief probability, we show that excessive debt accumulation is consistent with an...

To provide a rigorous analysis of monetary policy in the face of financial instability, the authors extend the standard dynamic stochastic general equilibrium model to include a financial system. Their simulations suggest that if financial stability affects output and inflation with a lag, and if the central bank has privileged information about fi...

The Great Recession affected export and import patterns in our sample countries, and these changes, coupled with a more volatile external environment, have profound impact on our estimates of real exchange rate misalignments and projections of sustainable real exchange rates. We find that real misalignments in several countries with pegged exchange...

Purpose – The Maastricht inflation criterion has influenced the choice of disinflation strategies of prospective euro area member countries. Some historically high-inflation countries chose the fiat disinflation strategy of “low inflation now, reforms later,” bringing inflation down quickly. Their inflation rates increased immediately after their e...

The paper examines the effects of aid and its volatility on consumption, investment, and the structure of production in the context of an intertemporal two-sector general equilibrium model, calibrated using data for aid-dependent countries in Africa. A permanent flow of aid mainly finances consumption rather than investment--consistent with the his...

Emerging market countries had by early 2009 announced that they will have remained fiscally conservative during the 2008-09 crisis, at least compared with the developed countries, which announced much larger fiscal stimuli. We argue that the difference in the pre-announced fiscal stance between those two groups of countries could be at least partly...

Since unification, the debate about Germany's poor economic performance has focused on supply-side weaknesses, and the associated reform agenda sought to make low-skill labour markets more flexible. We question this diagnosis using three lines of argument. First, effective restructuring of the supply side in the core advanced industries was carried...

Emerging market countries had by early 2009 announced that they will have remained fiscally conservative during the 2008–09 crisis, at least compared with the developed countries, which announced much larger fiscal stimuli. The authors argue that the difference in the pre-announced fiscal stance between those two groups of countries could be at lea...

This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political auton...

Summary Evidence is mounting that the pattern of overseas aid through time, of which its volatility (or instability) is a key dimension, has an important influence on its effectiveness. The three papers in this Special Section examine the extent of this influence, and how it may be possible to control volatility in the interests of more effective a...

The paper presents a methodology for measuring the clarity of central bank communication, illustrating it with the case of the European Central Bank (ECB) in 1999-2007. The analysis identifies the ECB's written communication as clear about 95 percent of instances, which is comparable to, or even better than, other central banks for which a similar...

Estimation and simulation of sustainable real exchange rates in a sample of EU member countries find vulnerabilities connected to the adoption of the euro if the rate vis-à-vis the euro were to be fixed with weak fundamentals and inappropriate policies. Sample countries have benefited from dramatic improvements in their external positions, in part...

The Czech National Bank has a respectable track record in terms of its policy actions and the corresponding inflation outturns. Using a simple forward-looking policy rule, we find that its main communication tools-inflation targets, inflation forecasts, verbal assessments of the inflation risks contained in quarterly inflation reports, and the voti...

This paper contributes to the analysis of monetary policy in the face of financial instability. In particular, we extend the standard new Keynesian dynamic stochastic general equilibrium (DSGE) model with sticky prices to include a financial system. Our simulations suggest that if financial instability affects output and inflation with a lag and if...

The dispersion of European Union inflation rates drifted upward in recent years, after the drive toward the euro pushed it downward sharply in the late 1990s and early 2000s. Inflation accelerated in economies that have either grown faster than their potential output or have failed to liberalize their factor and product markets, generating cost-pus...

This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political auton...

Summary The paper, building on the authors' previous analysis, examines the relative volatility of aid flows into developing countries and their domestic revenue, using new data, and three alternative measures of aid instability (relative volatility vis-à-vis fiscal revenue, unpredictability of aid disbursement relative to commitments, and failure...

The first 10 years of Czech Republic's inflation targeting regime have been remarkable by the persistent undershooting of the inflation targets. This article is an introduction to a special issue aimed at analyzing the factors of the undershooting. The articles in this issue explore the following hypotheses: the impact of a series of counter-inflat...

Inflation-targeting central banks have a respectable track record at explaining their policy actions and corresponding inflation outturns. Using a simple forward-looking policy rule and an assessment of inflation reports, we provide a new methodology for the empirical evaluation of consistency in central bank communication. We find that the three c...

The Czech National Bank has a respectable track record in terms of its policy actions and the corresponding inflation outturns. The authors analyze its main communication tools – inflation targets, inflation forecasts, verbal assessments of the inflation risks contained in quarterly inflation reports, and the voting within the CNB Board – to assess...

The positive impact of foreign aid is limited by the erratic behavior of aid flows. The introduction in 1999 of various initiatives anchored in IMF Poverty Reduction Strategy Papers aimed at strengthening coordination among donors, improving the design of financial support programs, and improving domestic records of policy implementation should hav...

Estimation and simulation of sustainable real exchange rates in four of the new EU member countries point to potential difficulties in sustaining the ERM2 regime if entered too soon and with weak policies. According to the estimates, the Czech, Hungarian, and Polish currencies were overvalued in early 2005. Simulations, conditional on large-model m...

The Maastricht inflation criterion, designed in the early 1990s to bring “high-inflation” EU countries into line with “low-inflation” countries prior to the introduction of the euro, poses challenges for both new EU member countries and the European Central Bank. While the criterion has positively influenced the public stance toward low inflation,...

The Maastricht inflation criterion, designed in the early 1990s to bring “high-inflation” EU countries in line with “low-inflation” countries prior to the introduction of the euro, poses challenges for both new EU member countries and the European Central Bank. While the criterion has positively influenced the public stance toward low inflation, it...

Since unification, the debate about Germany's poor economic performance has focused on supply-side weaknesses, and the associated reform agenda sought to make low-skill labour markets more flexible. We question this diagnosis using three lines of argument. First, effective restructuring of the supply side in the core advanced industries was carried...

We experimentally investigate social effects in a principal-agent setting with incomplete contracts. The strategic interaction scheme is based on the well-known Investment Game (Berg et al., 1995). In our setting four agents (i.e., trustees) and one principal (i.e., trustor) are interacting and the access to choices of peers in the group of trustee...

The literature on aid has come a long way in recent years, and as a result we now know much more about aid effectiveness than possibly ever before. But significant gaps in knowledge remain. One such gap is the effectiveness of aid in the so-called ?fragile states?, countries with critically low policy and institutional performance ratings. The curr...

Estimation and simulation of sustainable real exchange rates in some of the new EU accession countries point to potential difficulties in sustaining the ERM2 regime if entered too soon and with weak policies. According to the estimates, the Czech, Hungarian, and Polish currencies were overvalued in 2003. Simulations, conditional on large-model macr...

The paper looks at the hypothesis that financial-market liberalization can create a basis for more stable exchange rates, as deviations of exchange rates from equilibrium levels bring forth stabilizing flows of liquidity. This hypothesis suggests that opening up financial markets militates in favor of exchange-rate flexibility by increasing the via...

The positive impact of foreign aid is limited by the erratic behavior of aid flows. The introduction in 1999 of various initiatives anchored in Poverty Reduction Strategy Papers (PRSPs) which were aimed at strengthening coordination among donors, improving the design of financial support programs, and improving domestic records of policy implementa...

Computed fundamental real exchange rates in four acceding countries point out to difficulties in entering the ERM II too soon after the EU entry. Computations suggest that it is unlikely for the Czech, Hungarian and Polish economies to maintain low inflation during 2004-2010, and at the same time, to keep their currencies within the ERM II. In addi...

Computed fundamental real exchange rates in four new EU members point to difficulties in jointly entering the ERM II soon after the EU entry. Three currencies out of the four were overvalued prior to EU entry. Computations suggest that it is unlikely that the Czech, Hungarian and Polish economies will maintain low inflation during 2004 - 2010 and a...

The paper looks at the hypothesis that financial-market liberalization can create a basis for more stable exchange rates, as deviations of exchange rates from equilibrium levels bring forth stabilizing flows of liquidity. This hypothesis suggests that opening up financial markets militates in favor of exchange-rate flexibility by increasing the via...

This paper investigates fiscal developments in 112 countries during the 1990s. It finds that while the overall fiscal balance improved in most of them, the composition of this improvement differed. In countries without IMF-supported programmes, revenues increased modestly and expenditure declined sharply, while in programme countries both post-prog...

This paper investigates fiscal developments in 112 countries during the 1990s. It finds that while the overall fiscal balance improved in most of them, the composition of this improvement differed. In countries without IMF-supported programmes, revenues increased modestly and expenditure declined sharply, while in programme countries both post-prog...

The paper presents the rationale for spreadsheet-based debt sustainability assessments. Policymakers can use these exercises in two ways. First, assessments of possible debt developments provide 'reality checks' of macroeconomic projections. Second, the financial stability exercise may indicate vulnerability to crises. Empirically, using the IMF de...

Three sources – research on monetary policy under uncertainty, the managerial literature, and the real-life strategies of five inflation targeters – have been used to survey methods that are available to monetary policy makers to deal with uncertainty. The methods have been compared within a framework that is based on a decision matrix. The compara...

The paper investigates empirically the endogenous liquidity nexus of exchange rate determination on a sample of four transition economies. We find evidence in favor of the hypothesis of a nonlinear error correction process vis-a-vis longer-term trend deviations. The results suggest that early and successful exchange-rate market and financial-accoun...

Centrally planned economies tend to be less efficient than economies in which agents are free to choose their output targets, as well as the means to meet them. This paper presents a simple model of planner–manager interactions and shows how planned economies can end up in a low-effort, low-output equilibrium even though they may have started in a...

This article examines empirical evidence on the volatility and uncertainty of aid flows and their main policy implications. Aid is found to be more volatile than fiscal revenues--particularly in highly aid-dependent countries--and shortfalls in aid and domestic revenue tend to coincide. The article also finds that uncertainty about aid disbursement...

Although foreign aid has been shrinking as a share of the budgets of donor countries, it remains very important for recipient countries. They can use it to finance activities that they may not have enough resources to finance on their own-for example, building schools and hospitals; paying the salaries of teachers and nurses; and upgrading water qu...

From the early 1960s to the early 1980s, the officially recorded output of cocoa in Ghana declined by 60%. During the 1983-95 Economic Recovery Programme, however, the official output of cocoa doubled. Although these developments have inspired much empirical research, most of the studies have been unable to explain the medium-term persistence of co...

Centrally planned economies tend to be less efficient than economies in which agents are free to choose their output targets, as well as the means to meet them. This paper presents a simple model of planner-manager interactions and shows how planned economies can end up in a low-effort, low-output equilibrium even though they may have started in a...

Given the differences in their origins, IMF-supported programs in capital account crisis were confronted with challenges that differed considerably from those of more traditional IMF programs. Given the dominant role of private capital flows, estimates of sustainable current account positions and financing needs were subject to much greater uncerta...

The paper investigates fiscal developments during the 1990s in 112 countries and tests whether the speed and composition of fiscal adjustment in transition economies differed from those in select countries with and without IMF-supported programs. While the overall fiscal balance improved in most of the examined countries, including the transition o...