The consensus among central bankers is that higher inflation expectations can drive up inflation today, requiring tighter policy. We assess this by devising a novel method for identifying shocks to inflation expectations, estimating a semi-structural VAR where an expectation shock is identified as that which causes measured expectations to diverge from rationality. Using data for the United States, we find that a positive inflation expectations shock is deflationary and contractionary: inflation, output, and interest rates all fall. These results are inconsistent with the standard New Keynesian model, which predicts inflation and interest rate hikes. We discuss possible resolutions to this new puzzle.
We produce a social unrest risk index for 125 countries covering a period of 1996 to 2020. The risk of social unrest is based on the probability of unrest in the following year derived from a machine learning model drawing on over 340 indicators covering a wide range of macro-financial, socioeconomic, development and political variables. The prediction model correctly forecasts unrest in the following year approximately two-thirds of the time. Shapley values indicate that the key drivers of the predictions include high levels of unrest, food price inflation and mobile phone penetration, which accord with previous findings in the literature.
This paper dives into the Fund’s historical coverage of cross-border spillovers in its surveillance. We use a state-of-the-art deep learning model to analyze the discussion of spillovers in all IMF Article IV staff reports between 2010 and 2019. We find that overall, while the discussion of spillovers decreased over time, it was pronounced in the staff reports of some systemically important economies and during periods of global spillover events. Spillover discussions were more prominent in staff reports covering advanced and emerging market economies, possibly reflecting their role as sources of global spillovers. The coverage of spillovers was higher in the context of the real, financial, and external sectors. Also, countries with larger economies, higher trade and capital account openess and lower inflation are more likely to discuss spillovers in their Article IV staff reports.
This paper is the first attempt to directly explore the long-run nonlinear relationship between the shadow economy and level of development. Using a dataset of 158 countries over the period from 1996 to 2015, our results reveal a robust U-shaped relationship between the shadow economy size and GDP per capita. Our results imply that the shadow economy tends to increase when economic development surpasses a given threshold or at least does not disappear. Our findings suggest that special attention should be given to the country’s level of development when designing policies to tackle issues related to the shadow economy.
Energy prices in the GCC countries are low by international standards. These low prices have co-existed with rapid economic development in the region over the past 50 years, but the costs of this policy have also risen in terms of very high energy usage per capita. Providing energy at low prices has also effectively absorbed resources that could otherwise have been invested in human and physical capital or saved for future generations. The implicit cost of low energy prices in the GCC, in terms of foregone revenue, is estimated to be around 5 percent of GDP (about 8 percent of non-oil GDP) this year. GCC countries have been embarking on energy price reform in recent years. The recent decision of the UAE to remove fuel subsidies is an important initiative. Nevertheless, energy prices are generally still below international levels and differ substantially across the GCC countries. In most countries, further steps are needed to raise energy prices to reduce the growth in energy consumption and to support the fiscal adjustment that is necessary in the current lower oil price environment. Evidence in this paper suggests the inflationary impact of higher energy prices in the GCC is likely to be small, and while there may be some adverse effect on growth in the near-term, over the longer-term the growth benefits should be positive. Given the low weight of energy products in the CPI, first round effects of higher energy prices should be limited, while well anchored inflation expectations should help prevent second-round effects. On growth, a gradual increase in energy prices should have a manageable impact on industrial activity, although energy intensive industries will be adversely affected and will need to adjust. In the longer-term energy price reforms could generate significant permanent real income gains for the economy as a whole. More broadly, international experiences suggest that the likelihood of success with energy price reforms increases if the reforms are
International Monetary Fund. Middle East and Central Asia Dept.
This 2015 Article IV Consultation highlights that Qatar is implementing an ambitious diversification strategy, while retaining its systemic role in the global natural gas market. Qatar accounts for one-third of global liquefied natural gas trade and has emerged as an important global financial investor, labor importer, and donor. The authorities are executing a large public infrastructure program to advance economic diversification and prepare for the FIFA 2022 World Cup. The economy has maintained strong growth momentum so far despite the large drop in oil prices since summer 2014. The short-term growth outlook is positive, but lower oil prices will lead to a substantial deterioration of the fiscal and external balances.
International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper discusses strengthening of fiscal policy and fiscal frameworks in Qatar. It proposes ways to ensure that sustainable fiscal policy is maintained in the medium to long term in Qatar. Fiscal policy remains sustainable, but given the large drop in oil prices, revenue-raising and expenditure-containing measures need to be considered to ensure intergenerational equity. Measures aimed at containing current spending, prioritizing capital expenditure, and raising nonhydrocarbon revenues would help bring fiscal policy back to consistency with intergenerational equity. Strengthening fiscal frameworks would help achieve the desirable fiscal policies.
This 2011 Article IV Consultation highlights that Qatar is using its fiscal space, generated from an increase in hydrocarbon production and prices, to implement a large public spending program. Large infrastructure investments are expected to sustain strong growth of 9 percent to 10 percent in the nonhydrocarbon sector in the medium term. The potential inflationary effect of the recent fiscal package is estimated to be about 1 percentage point. This underscores the need for fiscal policy to monitor aggregate demand and for the Qatar Central Bank to manage liquidity.