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Mr. Francis Vitek
This paper develops a panel unobserved components model of the monetary transmission mechanism in the world economy, disaggregated into its fifteen largest national economies. This structural macroeconometric model features extensive linkages between the real and financial sectors, both within and across economies. A variety of monetary policy analysis and forecasting applications of the estimated model are demonstrated, based on a novel Bayesian framework for conditioning on judgment.
Mr. Francis Vitek
This paper develops a structural macroeconometric model of the world economy, disaggregated into forty national economies, to facilitate multilaterally consistent macrofinancial policy, risk and spillover analysis. This panel dynamic stochastic general equilibrium model features a range of nominal and real rigidities, extensive macrofinancial linkages, and diverse spillover transmission channels. These macrofinancial linkages encompass bank and capital market based financial intermediation, with financial accelerator mechanisms linked to the values of the housing and physical capital stocks. A variety of monetary policy analysis, fiscal policy analysis, macroprudential policy analysis, spillover analysis, and forecasting applications of the estimated model are demonstrated. These include quantifying the monetary, fiscal and macroprudential transmission mechanisms, accounting for business cycle fluctuations, and generating relatively accurate forecasts of inflation and output growth.
International Monetary Fund

mechanisms for adjusting the minimum wage: no indexation (fixed minimum wage), indexation to aggregate wage inflation, indexation to unit labor cost growth, indexation to consumption price inflation, and indexation to the sum of consumption price inflation and average labor productivity growth. We find that introducing a minimum wage in Hong Kong SAR has the potential to elevate macroeconomic volatility and distort the dynamic response of the economy to shocks. Indeed, introducing a minimum wage which binds for 20 percent of households is estimated to amplify the

International Monetary Fund
We study the impact of a minimum wage on business cycle volatility, depending upon its coverage and adjustment mechanism. As with other small open economies, Hong Kong SAR is vulnerable to external shocks, with its exchange rate regime precluding active monetary policy. Adjustment to past shocks has relied on flexible domestic prices. We find that a minimum wage affecting 20 percent of employees would amplify output volatility by 0.2 percent to 9.2 percent, and employment volatility by ?1.2 percent to 7.8 percent. A fixed wage or indexation to consumption price inflation increases volatility most. Indexation to wage inflation or unit labor cost growth is preferable, largely preserving labor market flexibility.
Mr. Francis Vitek

Domestic Credit Risk Premium Shock 8. Impulse Responses to a Domestic Duration Risk Premium Shock 9. Impulse Responses to a Domestic Equity Risk Premium Shock 10. Impulse Responses to a Domestic Fiscal Expenditure Shock 11. Impulse Responses to a Domestic Fiscal Revenue Shock 12. Impulse Responses to a World Energy Commodity Price Shock 13. Impulse Responses to a World Nonenergy Commodity Price Shock 14. Forecast Error Variance Decompositions of Consumption Price Inflation 15. Forecast Error Variance Decompositions of Output 16. Forecast Error Variance

Mr. Francis Vitek

Responses to a Domestic Monetary Policy Shock 5. Impulse Responses to a Domestic Credit Risk Premium Shock 6. Impulse Responses to a Domestic Duration Risk Premium Shock 7. Impulse Responses to a Domestic Equity Risk Premium Shock 8. Impulse Responses to a Domestic Fiscal Expenditure Shock 9. Impulse Responses to a Domestic Fiscal Revenue Shock 10. Impulse Responses to a World Energy Commodity Price Markup Shock 11. Impulse Responses to a World Nonenergy Commodity Price Markup Shock 12. Forecast Error Variance Decompositions of Consumption Price Inflation

Mr. Francis Vitek

Responses to a Domestic Equity Risk Premium Shock Figure 9. Impulse Responses to a Domestic Fiscal Expenditure Shock Figure 10. Impulse Responses to a Domestic Fiscal Revenue Shock Figure 11. Impulse Responses to a World Energy Commodity Price Markup Shock Figure 12. Impulse Responses to a World Nonenergy Commodity Price Markup Shock Figure 13. Forecast Error Variance Decompositions of Consumption Price Inflation Figure 14. Forecast Error Variance Decompositions of Output Figure 15. Forecast Error Variance Decompositions of Private Consumption Figure 16

Mr. Francis Vitek

polynomial in the lag operator φ 1 ( L ) = 1 - φ 1,1 L - φ 1,2 E t L -1 . The response coefficients of this relationship vary across economies with their export openness, measured by the ratio of exports to output X i Y i , as well as their commodity export intensities, measured by the ratios of commodity exports to exports X i COM Z X i . The cyclical component of consumption price inflation π ^ t , t C depends on a linear combination of its past and expected future cyclical components driven by the contemporaneous cyclical component of output according to

Mr. Francis Vitek

Shock Figure 29. IRFs of Macro Variables to a Nonenergy Commodity Price Markup Shock Figure 30. IRFs of Financial Variables to a Nonenergy Commodity Price Markup Shock Figure 31. Historical Decompositions of Consumption