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In this paper three possible reasons are examined for a sluggish inflation response to a hard currency peg. Models of overlapping wage contracts are analyzed and shown to generate little inertia. This contrasts with the effects of government credibility and the speed of private sector learning, which are shown to have a major impact on the speed of inflation adjustment. But even if individual agents believe the government will not devalue, it is shown that inflation inertia can still arise if these expectations are not common knowledge.

Conventional peg --- Currency --- Deflation --- Economic theory & philosophy --- Economic Theory --- Economic theory --- Exchange rates --- Expectations --- Foreign Exchange --- Foreign exchange --- Inflation persistence --- Inflation --- Macroeconomics --- Price Level --- Prices --- Rational expectations --- Speculations --- Germany

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The development and use of forward-looking macro models in policymaking institutions has proceeded at a pace much slower than predicted in the early 1980s. An important reason is that researchers have not had access to robust and efficient solution techniques for solving nonlinear forward-looking models. This paper discusses the properties of a new algorithm that is used for solving MULTIMOD, the IMF’s multicountry model of the world economy. This algorithm is considerably faster and much less prone to simulation failures than to traditional algorithms and can also be used to solve individual country models of the same size.

Banks and Banking --- Computational Techniques --- Computer Programs: Other Computer Software --- Currency --- Data Collection and Data Estimation Methodology --- Economic theory & philosophy --- Economic Theory --- Economic theory --- Exchange rates --- Expectations --- Finance --- Financial services --- Foreign Exchange --- Foreign exchange --- General Aggregative Models: Forecasting and Simulation --- Interest rates --- Interest Rates: Determination, Term Structure, and Effects --- Long term interest rates --- Rational expectations --- Short term interest rates --- Speculations --- United States

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This paper studies how uncertainty about fundamentals contributed to currency crises from both a theoretical and an empirical perspective. We find evidenceCbased on a monthly dataset of Consensus forecasts for six Asian countries in the period January 1995-May 2001Cconfirming the theoretical predictions (from both unique- and multiple-equilibria models) that: (i) speculative attacks depend not only on actual and expected fundamentals but also on the variance of speculators' expectations about them; and (ii) the sign of the effect of the variance depends on whether expected fundamentals are "good" or "bad." These results are robust to the definition of exchange rate pressure indices, the estimation sample (precrisis vs. full sample), the method chosen to avoid spurious correlations, and possible time-varying coefficients for the mean, the variance, and the threshold separating good from bad expected fundamentals.

Foreign Exchange --- Macroeconomics --- Money and Monetary Policy --- Expectations --- Speculations --- Asymmetric and Private Information --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Currency --- Foreign exchange --- Monetary economics --- Economic & financial crises & disasters --- Exchange rates --- Currencies --- Currency crises --- Exchange rate indexes --- Exchange rate arrangements --- Money --- Financial crises --- Hong Kong Special Administrative Region, People's Republic of China

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The paper models an adjustable peg exchange rate arrangement as a policy rule with an escape clause under which the timing and magnitudes of realignments are the outcomes of policy optimization decisions. Under the assumptions that market participants are rational, risk averse, and fully informed about the incentives of policymakers, the analysis focuses on the implications for relating realignment expectations to the state variables that enter the policy objective function, for modeling the bias in using forward exchange rates to predict future spot rates, and for characterizing the effectiveness of sterilized intervention.

Banking --- Banks and Banking --- Capacity --- Capital --- Currency --- Economic theory & philosophy --- Economic Theory --- Economic theory --- Exchange rates --- Expectations --- Foreign exchange reserves --- Foreign Exchange --- Foreign exchange --- Intangible Capital --- International reserves --- Investment --- Investments: General --- Macroeconomics --- Monetary Policy --- Rational expectations --- Return on investment --- Saving and investment --- Speculations

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We describe the evolution of forecasts in the run-up to recessions. The GDP forecasts cover 63 countries for the years 1992 to 2014. The main finding is that, while forecasters are generally aware that recession years will be different from other years, they miss the magnitude of the recession by a wide margin until the year is almost over. Forecasts during non-recession years are revised slowly; in recession years, the pace of revision picks up but not sufficiently to avoid large forecast errors. Our second finding is that forecasts of the private sector and the official sector are virtually identical; thus, both are equally good at missing recessions. Strong booms are also missed, providing suggestive evidence for Nordhaus’ (1987) view that behavioral factors—the reluctance to absorb either good or bad news—play a role in the evolution of forecasts.

Economics --- Economic sociology --- Socio-economics --- Socioeconomics --- Sociology of economics --- Sociology --- Sociological aspects. --- Social aspects --- Macroeconomics --- Economic Theory --- Model Evaluation and Selection --- Forecasting and Simulation: Models and Applications --- Prices, Business Fluctuations, and Cycles: Forecasting and Simulation --- Macroeconomics: Production --- Expectations --- Speculations --- Economic theory & philosophy --- Production growth --- Rational expectations --- Production --- Economic theory --- Argentina