International Monetary Fund. Fiscal Affairs Dept. and International Monetary Fund. Strategy, Policy, & Review Department
The International Monetary Fund’s engagement on social safety net (SSN) issues is likely to expand as member countries respond to growing challenges in the economic and fiscal landscape. SSNs play a crucial role in protecting households from poverty, promoting inclusive growth, and maintaining social stability. This technical note discusses (1) the different channels through which SSN spending may become macro-critical, (2) how to assess the importance of these channels, and (3) the types of policy responses that are appropriate and the trade-offs involved in choosing among them. To facilitate a more comprehensive assessment of SSN spending, the paper also examines the complementary role of labor market programs (for example, unemployment benefits and active labor market programs). The paper emphasizes the importance of early engagement and coordination with development partners with expertise on social safety nets and with different stakeholders when formulating policy advice.
We study the link between central bank independence and inflation by providing narrative and empiricial evidence based on Latin America’s experience over the past 100 years. We present a novel historical dataset of central bank independence for 17 Latin American countries and recount the rocky journey traveled by Latin America to achieve central bank independence and price stability. After their creation as independent institutions, central bank independence was eroded in the 1930s at the time of the Great Depression and following the abandonement of the gold exchange standard. Then, by the 1940s, central banks turned into de facto development banks under the aegis of governments, sawing the seeds for high inflation. It took the high inflation episodes of the 1970s and 1980s and the associated major decline in real income, and growing social discontent, to grant central banks political and operational independence to focus on fighting inflation starting in the 1990s. The empirical evidence confirms the strong negative association between central bank independence and inflation and finds that improvements in independence result in a steady decline in inflation. It also shows that high levels of central bank independence are associated with reductions in the likelihood of high inflation episodes, especially when accompanied by reductions in central bank financing to the central government.