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We analyze the causes of the apparent bias towards optimism in growth forecasts underpinning the design of IMF-supported programs, which has been documented in the literature. We find that financial variables observable to forecasters are strong predictors of growth forecast errors. The greater the expansion of the credit-to-GDP gap in the years preceding a program, the greater its over-optimism about growth over the next two years. This result is strongest among forecasts that were most optimistic, where errors are also increasing in the economy’s degree of liability dollarization. We find that the inefficient use of financial information applies to growth forecasts more broadly, including the IMF’s forecasts in the World Economic Outlook and those produced by professional forecasters compiled by Consensus Economics. We conclude that improved macrofinancial analysis represents a promising avenue for reducing over-optimism in growth forecasts.

Macroeconomics --- Economics: General --- Money and Monetary Policy --- Forecasting --- Forecasting and Other Model Applications --- Macroeconomics: Production --- International Monetary Arrangements and Institutions --- International Finance Forecasting and Simulation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Fiscal Policy --- Financial Markets and the Macroeconomy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Economic & financial crises & disasters --- Economics of specific sectors --- Monetary economics --- Economic Forecasting --- Fiscal consolidation --- Fiscal policy --- Credit --- Money --- Credit booms --- Production growth --- Production --- Fiscal multipliers --- Currency crises --- Informal sector --- Economics --- Economic theory --- Monetary policy --- United States

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This paper recounts Chile’s experience with capital account policies since the 1990s. We present how two external shocks were confronted under very different macroeconomic and capital account frameworks. We show that during the 1997-98 Asian-LTCM-Russia crisis, a closed capital account and relatively rigid exchange rate severely constrained the monetary policy response to the shock, aggravating the fall in domestic demand. During the 2008-09 crisis, a full-fledged inflation targeting framework allowed the authorities to implement a significant countercyclical response. We argue that domestic stability considerations lay behind the policy regime switch toward capital account liberalization from 1999 onwards.

Capital market --- Capital markets --- Market, Capital --- Finance --- Financial institutions --- Loans --- Money market --- Securities --- Crowding out (Economics) --- Efficient market theory --- State supervision --- Deregulation --- Banks and Banking --- Exports and Imports --- Foreign Exchange --- Financial Markets and the Macroeconomy --- Central Banks and Their Policies --- Comparative or Joint Analysis of Fiscal and Monetary Policy --- Stabilization --- Treasury Policy --- International Investment --- Long-term Capital Movements --- Current Account Adjustment --- Short-term Capital Movements --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- International economics --- Currency --- Foreign exchange --- Banking --- Capital account --- Exchange rates --- Capital controls --- Capital inflows --- Balance of payments --- Real exchange rates --- Capital movements --- Banks and banking --- Chile

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We estimate the short-term effects of fiscal consolidation on economic activity in 14 countries in Latin America and the Caribbean. We examine contemporaneous policy documents to identify changes in fiscal policy motivated by a desire to reduce the budget deficit and not by responding to prospective economic conditions. Based on this narrative dataset, our estimates suggest that fiscal consolidation has contractionary effects on GDP, consistent with a multiplier of 0.9. We find these effects to be close to those in OECD countries based on a similarly constructed dataset (Devries and others, 2011). We also find similar estimation results for the two groups of economies for the effect of fiscal consolidation on the external current account balance, providing support for the twin deficits hypothesis.

Exports and Imports --- Investments: General --- Macroeconomics --- Public Finance --- Fiscal Policy --- Taxation, Subsidies, and Revenue: General --- Current Account Adjustment --- Short-term Capital Movements --- Investment --- Capital --- Intangible Capital --- Capacity --- International economics --- Fiscal consolidation --- Fiscal policy --- Fiscal multipliers --- Current account balance --- Private investment --- Balance of payments --- National accounts --- Saving and investment --- Costa Rica

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We examine how the development of the digital infrastructure known as the “India Stack”—including an interoperable payments system, a universal digital ID, and other features—is delivering on the government’s objective to expand the provision of financial services. While each individual component of the India Stack is important, we argue that its key overarching feature is a foundational approach of providing extensive public infrastructures and standards that generates important synergies across the layers of the Stack. Until recently, a large share of India’s population lacked access to formal banking services and was largely reliant on cash for financial transactions. The expansion of mobile-based financial services that enable simple and convenient ways to save and conduct financial transactions has provided a novel alternative for expanding the financial net. The Stack’s improved digital infrastructures have already allowed for a rapid increase in the use of digital payments and the entry of a range of competitors including fintech and bigtech firms.

Accounting --- Finance: General --- Industries: Financial Services --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Economic Development: Financial Markets --- Saving and Capital Investment --- Corporate Finance and Governance --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Public Administration --- Public Sector Accounting and Audits --- Finance --- Computer applications in industry & technology --- Public finance accounting --- Financial services --- Fiscal accounting and reporting --- Payment systems --- Mobile banking --- Fintech --- Financial services industry --- Finance, Public --- Clearinghouses --- Banking --- Banks and banking, Mobile --- Technological innovations --- India