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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.

Macroeconomics. --- Econometric models. --- International finance. --- International monetary system --- International money --- Finance --- International economic relations --- Econometrics --- Mathematical models --- Economics --- Banks and Banking --- Finance: General --- Investments: Bonds --- Macroeconomics --- Financial Markets and the Macroeconomy --- International Policy Coordination and Transmission --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- International Financial Markets --- General Financial Markets: General (includes Measurement and Data) --- Externalities --- Interest Rates: Determination, Term Structure, and Effects --- Investment & securities --- Spillovers --- Bond yields --- Yield curve --- Emerging and frontier financial markets --- Securities markets --- Financial sector policy and analysis --- Financial institutions --- Financial services --- Financial markets --- International finance --- Bonds --- Interest rates --- Financial services industry --- Capital market --- United States

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Effective arrangements for micro and macroprudential policies to further overall financial stability are strongly desirable for all countries, emerging or advanced. Both policies complement each other, but there can also be potential areas of overlap and conflict, which can complicate this cooperation. Organizing their very close interactions can help contain these potential tensions. This note clarifies the essential features of macroprudential and microprudential policies and their interactions, and delineates their borderline. It proposes mechanisms for aligning both policies in the pursuit of financial stability by identifying those elements that are desirable for effective cooperation between them. The note provides general guidance. Actual arrangements will need take into account country-specific circumstances, reflecting the fact that that there is no “one size fits all.”.

Banks and Banking --- Finance: General --- Macroeconomics --- Money Supply --- Credit --- Money Multipliers --- Policy Objectives --- Policy Designs and Consistency --- Policy Coordination --- General Financial Markets: Government Policy and Regulation --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Financial Markets and the Macroeconomy --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Finance --- Microeconomics --- Financial services law & regulation --- Macroprudential policy --- Systemic risk --- Microprudential policy --- Countercyclical capital buffers --- Financial sector stability --- Financial sector policy and analysis --- Financial regulation and supervision --- Economic policy --- Financial risk management --- Asset requirements --- Financial services industry --- United Kingdom

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The IMF’s Global Integrated Monetary and Fiscal model (GIMF) is used to examine the scope for structural reforms in the euro area to offset the negative impact of fiscal consolidation required to put public debt back on a sustainable path. The results suggest that structural reforms in core countries could quite reasonably be expected to offset the near term negative impact on activity arising from the required fiscal consolidation that uses a plausible mix of instruments to achieve the permanent improvement in the deficit. However, for the periphery, where the required consolidation is roughly twice as large as that required in the core, the results suggest that it would take several years before structural reforms could return the level of output back to its pre-consolidation path.

Structural adjustment (Economic policy) --- Economic stabilization --- Adjustment, Economic --- Business stabilization --- Economic adjustment --- Stabilization, Economic --- Economic policy --- Labor --- Macroeconomics --- Public Finance --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Forecasting and Simulation: Models and Applications --- Fiscal Policy --- Open Economy Macroeconomics --- International Policy Coordination and Transmission --- Demand and Supply of Labor: General --- Institutions and the Macroeconomy --- Labor Economics Policies --- Debt --- Debt Management --- Sovereign Debt --- National Government Expenditures and Related Policies: General --- Labour --- income economics --- Public finance & taxation --- Labor supply --- Structural reforms --- Labor market reforms --- Public debt --- Expenditure --- Macrostructural analysis --- Labor market --- Manpower policy --- Debts, Public --- Expenditures, Public --- United States --- Income economics

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Offshore use of the renminbi expanded rapidly in Hong Kong SAR as China sought to develop an international role for its currency while maintaining capital controls. This prompts two questions addressed in this paper: How far advanced is renminbi internationalization? And, what role does Chinese capital account liberalization play? The first is addressed by testing the extent of integration of offshore and onshore markets for the renminbi using a Threshold Autoregression (TAR) model and finds that there are substantial unexploited arbitrage opportunities. A VAR model is used to indentify factors contributing to this limited market integration and finds that capital controls and shifts in global market sentiment explain much of the divergence in onshore and offshore renminbi exchange rates. To address the second question, the paper shows how capital account measures have been used to promote offshore use of the renminbi more actively in the wake of the global financial crisis, but that this was done asymmetrically with controls on inflows eased to a greater extent than on outflows. It concludes that a more balanced liberalization process will sustain progress in renminbi internationalization.

Investments, Foreign --- Investments --- Investments: Commodities --- Exports and Imports --- Finance: General --- Policy Objectives --- Policy Designs and Consistency --- Policy Coordination --- International Monetary Arrangements and Institutions --- Financial Aspects of Economic Integration --- Macroeconomic Analyses of Economic Development --- International Investment --- Long-term Capital Movements --- General Financial Markets: General (includes Measurement and Data) --- Current Account Adjustment --- Short-term Capital Movements --- Portfolio Choice --- Investment Decisions --- International economics --- Investment & securities --- Finance --- Arbitrage --- Capital account liberalization --- Capital controls --- Liquidity --- Capital flows --- Commodities --- Balance of payments --- Asset and liability management --- Capital movements --- Financial instruments --- Economics --- Hong Kong Special Administrative Region, People's Republic of China

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The External Balance Assessment (EBA) methodology has been developed by the IMF’s Research Department as a successor to the CGER methodology for assessing current accounts and exchange rates in a multilaterally consistent manner. Compared to other approaches, EBA emphasizes distinguishing between the positive empirical analysis and the normative assessment of current accounts and exchange rates, and highlights the roles of policies and policy distortions. This paper provides a comprehensive description and discussion of the 2013 version (“2.0”) of the EBA methodology, including areas for its further development.

Finance. --- Funding --- Funds --- Economics --- Currency question --- Exports and Imports --- Foreign Exchange --- International Investment --- Long-term Capital Movements --- Current Account Adjustment --- Short-term Capital Movements --- Open Economy Macroeconomics --- International Policy Coordination and Transmission --- International Financial Markets --- Economic Development: Financial Markets --- Saving and Capital Investment --- Corporate Finance and Governance --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- International economics --- Currency --- Foreign exchange --- Current account --- Real exchange rates --- External balance assessment (EBA) --- Real effective exchange rates --- Capital controls --- Balance of payments --- External position --- International finance --- Capital movements --- South Africa