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Cover IMF Working Papers
The Economic Effects of COVID-19 Containment Measures
Mr. Pragyan Deb, Davide Furceri, Mr. Jonathan David Ostry, and Nour Tawk
Containment measures are crucial to halt the spread of the 2019 COVID-19 pandemic but entail large short-term economic costs. This paper tries to quantify these effects using daily global data on real-time containment measures and indicators of economic activity such as Nitrogen Dioxide (NO2) emissions, flights, energy consumption, maritime trade, and mobility indices. Results suggest that containment measures have had, on average, a very large impact on economic activity—equivalent to a loss of about 15 percent in industrial production over a 30-day period following their implementation. Using novel data on fiscal and monetary policy measures used in response to the crisis, we find that these policy measures were effective in mitigating some of these economic costs. We also find that while workplace closures and stay-at-home orders are more effective in curbing infections, they are associated with the largest economic costs. Finally, while easing of containment measures has led to a pickup in economic activity, the effect has been lower (in absolute value) than that from the tightening of measures.
Keywords:
WP; containment measure; public transport; policy response; types containment; time trend; measures to the spread; stringency index; different containment measure; costly containment measure; containment measures to the spread of the virus; relaxation of containment measure; monetary policy support; measures to the spread of the virus; COVID-19; Industrial production; Fiscal stimulus; Central bank policy rate; Global; pandemics; containment measures; monetary policy stimulus
Cover IMF Working Papers
How External Factors Affect Domestic Economy: Nowcasting an Emerging Market
Mr. Serhat Solmaz and Marzie Taheri Sanjani
External headwinds, together with domestic vulnerabilities, have loomed over the prospects of emerging markets in recent years. We propose an empirical toolbox to quantify the impact of external macro-financial shocks on domestic economies in parsimonious way. Our model is a Bayesian VAR consisting of two blocks representing home and foreign factors, which is particularly useful for small open economies. By exploiting the mixed-frequency nature of the model, we show how the toolbox can be used for “nowcasting” the output growth. The conditional forecast results illustrate that regular updates of external information, as well as domestic leading indicators, would significantly enhance the accuracy of forecasts. Moreover, the analysis of variance decompositions shows that external shocks are important drivers of the domestic business cycle.
Keywords:
WP; open economy; Nowcasting; Bayesian estimation; VAR; Emerging Market; home economy; economy interest rates; aggregated external shocks; counterfactual economy; GDP dynamic; economy block; simulated economy; Cyclical indicators; Production growth; Industrial production; Business cycles; Global
Cover IMF Working Papers
Effectiveness of Capital Outflow Restrictions
Christian Saborowski, Sarah Sanya, Hans Weisfeld, and Juan Yepez
This paper examines the effectiveness of capital outflow restrictions in a sample of 37 emerging market economies during the period 1995-2010, using a panel vector autoregression approach with interaction terms. Specifically, it examines whether a tightening of outflow restrictions helps reduce net capital outflows. We find that such tightening is effective if it is supported by strong macroeconomic fundamentals or good institutions, or if existing restrictions are already fairly comprehensive. When none of these three conditions is fulfilled, a tightening of restrictions fails to reduce net outflows as it provokes a sizeable decline in gross inflows, mainly driven by foreign investors.
Keywords:
WP; outflow control index; capital; outflow restriction; Capital flows; Capital controls; Emerging economies; inflow control intensity; flow variable; control tightening; capital flow restriction; interest rate stabilization; outflow control restriction; Capital outflows; Industrial production; Vector autoregression; Global
Cover IMF Working Papers
The Impact of Uncertainty Shocks on the UK Economy
Miss Stephanie Denis and Mr. Prakash Kannan
This paper quantifies the economic impact of uncertainty shocks in the UK using data that span the recent Great Recession. We find that uncertainty shocks have a significant impact on economic activity in the UK, depressing industrial production and GDP. The peak impact is felt fairly quickly at around 6-12 months after the shock, and becomes statistically negligible after 18 months. Interestingly, the impact of uncertainty shocks on industrial production in the UK is strikingly similar to that of the US both in terms of the shape and magnitude of the response. However, unemployment in the UK is less affected by uncertainty shocks. Finally, we find that uncertainty shocks can account for about a quarter of the decline in industrial production during the Great Recession.
Keywords:
WP; uncertainty shock; economic activity; United Kingdom; Uncertainty; UK GDP; consumer confidence; policy rate shock; VAR framework; baseline Var model; unemployment in the UK; VAR model; Industrial production; Central bank policy rate; GDP forecasting; Global financial crisis of 2008-2009; Vector autoregression; Global
Cover IMF Working Papers
Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts
Mr. Olivier Coibion and Mr. Yuriy Gorodnichenko
We propose a new approach to test the full-information rational expectations hypothesis which can identify whether rejections of the arise from information rigidities. This approach quantifies the economic significance of departures from the and the underlying degree of information rigidity. Applying this approach to U.S. and international data of professional forecasters and other agents yields pervasive evidence consistent with the presence of information rigidities. These results therefore provide a set of stylized facts which can be used to calibrate imperfect information models. Finally, we document evidence of state-dependence in the expectations formation process.
Keywords:
WP; standard deviation; real GDP; growth rate; information rigidity; Numbers; Expectations; Survey Forecasts; noisy-information model; forecast error; information friction; Rational expectations; Inflation; Oil prices; Industrial production
Cover IMF Working Papers
Bayesian Dynamic Factor Analysis of a Simple Monetary DSGE Model
Mr. Maxym Kryshko
When estimating DSGE models, the number of observable economic variables is usually kept small, and it is conveniently assumed that DSGE model variables are perfectly measured by a single data series. Building upon Boivin and Giannoni (2006), we relax these two assumptions and estimate a fairly simple monetary DSGE model on a richer data set. Using post-1983 U.S.data on real output, inflation, nominal interest rates, measures of inverse money velocity, and a large panel of informational series, we compare the data-rich DSGE model with the regular - few observables, perfect measurement - DSGE model in terms of deep parameter estimates, propagation of monetary policy and technology shocks and sources of business cycle fluctuations. We document that the data-rich DSGE model generates a higher implied duration of Calvo price contracts and a lower slope of the New Keynesian Phillips curve. To reduce the computational costs of the likelihood-based estimation, we employed a novel speedup as in Jungbacker and Koopman (2008) and achieved the time savings of 60 percent.
Keywords:
WP; DSGE model; Regular and data-rich DSGE models; dynamic factor models; Bayesian estimation; fed funds rate; DSGE estimation; DSGE state; DSGE parameter; structural parameter; contractionary monetary policy; model concept; DSGE states-factor; DSGE m; rich DSGE; model state; Dynamic stochastic general equilibrium models; Inflation; Demand for money; Monetary base; Deflation
Cover IMF Working Papers
Monetary Policy Matters: New Evidence Basedon a New Shock Measure
Mr. Christopher W. Crowe and Mr. S. Mahdi Barakchian
Conventional VAR and non-VAR methods of identifying the effects of monetary policy shocks on the economy have found a negative output response to monetary tightening using U.S. data over the 1960s-1990s. However, we show that these methods fail to find this contractionary effect when the sample is restricted to the period since the 1980s, apparently due to changes in the policymaking environment that reduce their effectiveness. Identifying policy shocks using Fed Funds futures data, we recover the contractionary effect of monetary tightening on output and find that almost half of output variation over the period appears due to policy shocks.
Keywords:
WP; contractionary monetary policy; monetary policy shock; fed funds rate; price level; Monetary policy; VAR estimation; Fed Funds Futures; FOMC; shock measure; Fed policymaker; reaction function; Fed Funds futures data; Fed Funds futures contracts; Fed Funds Futures market; Vector autoregression; Futures; Central bank policy rate; Structural vector autoregression; Industrial production
Cover IMF Research Bulletin
IMF’s Jacques Polak Conference to Examine Macroeconomic and Financial Policies after the Crisis
International Monetary Fund. Research Dept.

This paper analyzes the link between economic growth and structural reforms. The paper highlights that as the recovery from the financial crisis firms up, many country authorities will turn their focus from short-term stabilization policies to more structural policies to spur long-term potential growth. The paper discusses that the global financial crisis has affected growth in countries of all income levels and has led to substantial output losses that in many cases could be permanent. The paper also presents a discussion on monetary policy and asset prices.

Keywords:
IRB; IMF research bulletin; liberalization; price discovery in market; bulletin; IMF's Jacques Polak Conference; Emerging and frontier financial markets; Industrial sector
Cover IMF Staff Country Reports
Canada: Selected Issues
International Monetary Fund

This Selected Issues paper for Canada presents comprehensive and broad-based analysis of the role of domestic and external shocks. Canada’s economic history illustrates the important role played by external as well as domestic macroeconomic disturbances. Canada’s economy slowed in 2001 because of the global slowdown, although by less than in many other countries. In 2003, the recovery has been interrupted by a series of shocks that moderated growth. Fluctuations in Canadian real GDP are explained by external and domestic cycles.

Keywords:
ISCR; CR; bank; tax rate; real GDP; CDN commodity price index; CDN government; exchange rate; CDN investment; Factor models; Commodity prices; Producer prices; Industrial production; Commodity price indexes; Global
Cover IMF Staff Country Reports
Euro Area Policies: Selected Issues
International Monetary Fund

An important aim of this paper is to take shifts in the long-term anchor in the empirical specifications. The study examines exchange-rate pass-through and external adjustment in the euro area. The impact on third-country trade and investment is also discussed. A better understanding of the economic behavior underlying limited pass-through is an important consideration for investigating the implications of currency fluctuations and the pattern of external adjustment. The impulse-response patterns suggest a high degree of local currency pricing in import prices and producer currency pricing in export prices.

Keywords:
ISCR; CR; price; euro area; producer price; output fluctuation; forecast error; impulse response function; Supply shocks; Industrial production; Deflation; Producer prices; Capacity utilization