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Mr. Jaromir Benes, Kevin Clinton, Asish George, Pranav Gupta, Joice John, Mr. Ondrej Kamenik, Mr. Douglas Laxton, Pratik Mitra, G.V. Nadhanael, Mr. Rafael A Portillo, Hou Wang, and Fan Zhang
This paper outlines the key features of the production version of the quarterly projection model (QPM), which is a forward-looking open-economy gap model, calibrated to represent the Indian case, for generating forecasts and risk assessment as well as conducting policy analysis. QPM incorporates several India-specific features like the importance of the agricultural sector and food prices in the inflation process; features of monetary policy transmission and implications of an endogenous credibility process for monetary policy formulation. The paper also describes key properties and historical decompositions of some important macroeconomic variables.
Mr. Jaromir Benes, Kevin Clinton, Asish George, Joice John, Mr. Ondrej Kamenik, Mr. Douglas Laxton, Pratik Mitra, G.V. Nadhanael, Hou Wang, and Fan Zhang
India formally adopted flexible inflation targeting (FIT) in June 2016 to place price stability, defined in terms of a target CPI inflation, as the primary objective of monetary policy. In this context, the paper draws on Indian macroeconomic developments since 2000 and the experience of other countries that adopted FIT to bring out insights on how credible policy with an emphasis on a strong nominal anchor can reduce the impact of supply shocks and improve macroeconomic stability. For illustrating the key issues given the unique structural characteristics of India and the policy options under an FIT framework, the paper describes an analytical framework using the core quarterly projection model (QPM). Simulations of the QPM are carried out to illustrate the monetary policy responses under different types of uncertainty and to bring out the importance of gaining credibility for improving monetary policy efficacy.
International Monetary Fund. Asia and Pacific Dept

) 623-7201 E-mail: Web: Price: $18.00 per printed copy International Monetary Fund Washington, D.C. Front Matter Page THAILAND SELECTED ISSUES May 2, 2017 Approved By Asia and Pacific Department Prepared by Juan Angel Garcia and Yiqun Wu (all APD) Contents THAILAND: BRINGING INFLATION BACK TO TARGET A. Context B. Policy Response References BOX 1. Monitoring Medium- to Long-Term Inflation Expectations FIGURE 1. Monetary Policy Simulations: Active

Mr. Tamim Bayoumi and Mr. Francis Vitek

monetary policy simulation. The larger output spillovers in response to a fiscal expansion compared to a monetary one partly reflects these bond market links. Whereas in the monetary policy simulation the positive spillovers through trade are being partly reversed by the brakes coming from monetary tightening in (say) Canada, in the case of a fiscal expansion monetary tightening occurs in both the United States and Canada. Since the offsetting support from monetary policy to the initial shock to domestic demand is similar in both countries, the spillovers more closely

International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper analyzes factors that could bring inflation back to target in Thailand. The paper estimates a hybrid New Keynesian Phillips curve with time varying parameters to gauge the quantitative role of (long-term) inflation trends, economic slack, and import price inflation in shaping inflation dynamics. The analysis reveals some important changes in Thailand’s inflation dynamics. It suggests that the impact of lower import prices was a major factor behind the decline in headline inflation in 2015, with low oil prices the largest contributor to inflation dynamics. Monetary policy easing, within a broader expansionary policy mix, should help bring inflation back to target.
Mr. Tamim Bayoumi and Mr. Francis Vitek
The Great Recession underlined that policies in some countries can have profound spillovers elsewhere. Sadly, the solution of simulating large macroeconomic models to measure these spillovers has been found wanting. Typical models generate lower international correlations of output and financial asset prices than are seen in even pre-crisis data. Imposing higher financial market correlations creates more reasonable cross-country spillovers, and is likely to become the norm in policy modeling despite weak theoretical underpinnings, as is already true of sticky wages. We propose using event studies to calibrate market reactions to particular policy announcements, and report results for U.S. monetary and fiscal policy announcements in 2009 and 2010 that are plausible and event-specific.
International Monetary Fund. Asia and Pacific Dept

Figure 1 below), without monetary or fiscal stimulus, inflation and inflation expectations would remain subdued, with substantial risks of inflation falling back outside the tolerance band, once base effects from higher oil prices fully unwind. Keeping rates on hold over the forecast period would only partially counteract weak inflationary dynamics. Moreover, the small but negative output gap would persist and the cost of further adverse shocks would be large. Figure 1. Thailand: Monetary Policy Simulations: Active and Passive Scenarios Source: IMF Staff

International Monetary Fund

countries. For example, a common interest rate shock could have very different consequences for output and price developments in countries with different monetary transmission mechanisms. This issue has been addressed using monetary policy simulations of simple macroeconomic models and impulse response analyses with structural identifying restrictions. 91. Britton (1996) develops a simple macroeconomic model for the economies of the United Kingdom, France and Germany which combines the IS/LM framework with the Dornbusch overshooting model of the exchange rate (the

Mr. Giuseppe Tullio

checks the growth of income under flexible rates is again the real wealth effect on consumption, as in the monetary policy simulations in the previous section. The higher inflation under flexible exchange rates and the smaller budget deficit check the growth of real wealth and hence of consumption. Real financial wealth is systematically smaller under flexible exchange rates than under fixed exchange rates. As a result of the behavior of real wealth, real private consumption peaks after about five years at a level that is about 3 per cent above the control solution

Mr. Tobias Adrian

“vulnerability channel,” as it pins down how vulnerability depends on expected growth. The second parameter governs the degree to which expected growth depends on the pricing of risk, and thus it appears in aggregate demand. This second channel is the “financial accelerator” of Bernanke, Gertler, and Gilchrist (1999) . Thus, in a very parsimonious model, Adrian and Duarte (2017) capture not only the “vulnerability channel” but also the “financial accelerator channel.” 4 , 5 The two together are referred to as the “risk-taking channel of monetary policy.” Simulations from