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Davide Debortoli, Mr. Jinill Kim, Jesper Lindé, and Mr. Ricardo C Nunes

), and the growth rate of output improves welfare significantly. And the results hold up when imposing realistic limitations on the extent to which monetary policy makers change policy interest rates. Moreover, among these measures, a suitably chosen weight on the model-consistent output gap delivers the lowest welfare loss. Specifically, we find that in a simple loss function—with the weight on annualized inflation normalized to unity—the optimized weight on the output gap is about 1. This value is considerably higher than the reference value of 0.048 derived in

Davide Debortoli, Mr. Jinill Kim, Jesper Lindé, and Mr. Ricardo C Nunes
Yes, it makes a lot of sense. This paper studies how to design simple loss functions for central banks, as parsimonious approximations to social welfare. We show, both analytically and quantitatively, that simple loss functions should feature a high weight on measures of economic activity, sometimes even larger than the weight on inflation. Two main factors drive our result. First, stabilizing economic activity also stabilizes other welfare relevant variables. Second, the estimated model features mitigated inflation distortions due to a low elasticity of substitution between monopolistic goods and a low interest rate sensitivity of demand. The result holds up in the presence of measurement errors, with large shocks that generate a trade-off between stabilizing inflation and resource utilization, and also when ensuring a low probability of hitting the zero lower bound on interest rates.
Lien Laureys, Mr. Roland Meeks, and Boromeus Wanengkirtyo

,” Journal of Money, Credit and Banking , Vol. 39 , No. 2-3 , pp. 319 – 349 . Debortoli , Davide , Jinill Kim , Jesper Lindé , and Ricardo Nunes , 2018 , “ Designing a Simple Loss Function for Central Banks: Does a Dual Mandate Make Sense? ” The Economic Journal . Draghi , Mario , 2016 , “ Delivering a symmetric mandate with asymmetric tools: monetary policy in a context of low interest rates,” Speech , Oesterreichische Nationalbank , Vienna . Erceg , Christopher J. , Dale W. Henderson , and Andrew T. Levin , 2000

Lien Laureys, Mr. Roland Meeks, and Boromeus Wanengkirtyo
We reconsider the design of welfare-optimal monetary policy when financing frictions impair the supply of bank credit, and when the objectives set for monetary policy must be simple enough to be implementable and allow for effective accountability. We show that a flexible inflation targeting approach that places weight on stabilizing inflation, a measure of resource utilization, and a financial variable produces welfare benefits that are almost indistinguishable from fully-optimal Ramsey policy. The macro-financial trade-off in our estimated model of the euro area turns out to be modest, implying that the effects of financial frictions can be ameliorated at little cost in terms of inflation. A range of different financial objectives and policy preferences lead to similar conclusions.
Mr. Lars E. O. Svensson

and Valencia (2012) 8 Conclusions References Appendix A A Markov process for crisis and non-crisis states B The logistic function C The simple loss function D The effect of the policy rate on the crisis increase in the unemployment rate E Kocherlakota on the value of eliminating the possibility of a crisis F The reduction of the probability of a crisis per expected non-crisis unemployment gap increase for each quarter G The case of a random crisis increase in the unemployment rate H The debt-to-GDP term in Schularick and Taylor (2012, table

International Monetary Fund. Research Dept.
The Fall 2017 IMF Research Bulletin includes a Q&A article covering "Seven Questions on the Globalization of Farmland" by Christian Bogmans. The first research summary, by Manmohan Singh and Haobing Wang is "Central Bank Balance Sheet Policies: Some Policy Implications." The second research summary is "Leaning Against the Windy Bank Lending" by Giovanni Melina and Stefania Villa. A listing of new IMF Working Papers and Staff Discussion Notes is featured, as well as new titles from IMF Publications. Information on IMF Economic Review is also included.
Mr. Lars E. O. Svensson
“Leaning against the wind” (LAW) with a higher monetary policy interest rate may have benefits in terms of lower real debt growth and associated lower probability of a financial crisis but has costs in terms of higher unemployment and lower inflation, importantly including a higher cost of a crisis when the economy is weaker. For existing empirical estimates, costs exceed benefits by a substantial margin, even if monetary policy is nonneutral and permanently affects real debt. Somewhat surprisingly, less effective macroprudential policy and generally a credit boom, with resulting higher probability, severity, or duration of a crisis, increases costs of LAW more than benefits, thus further strengthening the strong case against LAW.
Mr. Jiaqian Chen, Daria Finocchiaro, Jesper Lindé, and Karl Walentin
We examine the effects of various borrower-based macroprudential tools in a New Keynesian environment where both real and nominal interest rates are low. Our model features long-term debt, housing transaction costs and a zero-lower bound constraint on policy rates. We find that the long-term costs, in terms of forgone consumption, of all the macroprudential tools we consider are moderate. Even so, the short-term costs differ dramatically between alternative tools. Specifically, a loan-to-value tightening is more than twice as contractionary compared to loan-to-income tightening when debt is high and monetary policy cannot accommodate.
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper focuses on gaps and multiplier effects of infrastructure investment in New Zealand. There has been high quality work done to quantify the infrastructure gap for New Zealand by Oxford Economics on behalf of the Global Infrastructure Hub, drawing on international experiences and local data sources, but recognizing the risk that the infrastructure gap may be even larger than that stated in this work. This paper provides further analysis about the effects on New Zealand’s economy of closing the infrastructure gap. Closing the gap has quantifiable benefits, not just because it is a short-term stimulus to aggregate demand, but because of longer-lived effects on productivity, benefiting all sectors of the economy. There are prospective gains from closing New Zealand’s infrastructure gap. New Zealand has improved its infrastructure spending in the past several years. Nonetheless, there is scope to expand it further, to reduce its (admittedly small, but probably understated) infrastructure gap to match other advanced economies, and possibly help with regional development concerns.