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This paper investigates inflation risks for 12 Middle East and Central Asia countries, with an equal share of commodities exporters and importers. The empirical strategy leverages the recent developments in the estimation of macroeconomic risks and uses a semi-parametric approach that balances well flexibility and robustness for density projections. The paper uncovers interesting features of inflation dynamics in the region, including the role of backward versus forward-looking drivers, non-linearities, and heterogeneous and delayed exchange rate pass-through. The results have important implications for the conduct of monetary policy and central bank communication in the Middle East and Central Asia and emerging markets in general.

Macroeconomics --- Economics: General --- Inflation --- Production and Operations Management --- Foreign Exchange --- Forecasting and Other Model Applications --- Criteria for Decision-Making under Risk and Uncertainty --- Price Level --- Deflation --- Monetary Policy --- Commodity Markets --- Macroeconomics: Production --- Economic & financial crises & disasters --- Economics of specific sectors --- Currency --- Foreign exchange --- Prices --- Commodity prices --- Output gap --- Production --- Exchange rates --- Consumer price indexes --- Currency crises --- Informal sector --- Economics --- Economic theory --- Price indexes --- Iran, Islamic Republic of

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The paper evaluates the key drivers of fiscal crises in a sample of countries from all three income groups—advanced, emerging, and low-income countries, using fiscal crisis data recently developed by the IMF’s Fiscal Affairs Department. The empirical study focuses on three questions: (1) How does the composition of debtholders (domestic vs. foreign, resident vs. non-resident, or official vs. non-official) affect the probability of a fiscal crisis, after controlling for the level of public debt and other relevant variables?; (2) How does the development and size of the domestic financial sector affect the probability of a fiscal crisis?; and (3) How do changes in the debt level affect the probability of a fiscal crisis, for given compositions of the sovereign debt investor base and different levels of development and size of domestic financial markets? Our findings confirm the benefits of financial development, the danger of heavy reliance on a non-resident investor base, and also that emerging market economies have a lower debt carrying capacity compared to the full sample.

Macroeconomics --- Economics: General --- Public Finance --- Finance: General --- Financial Risk Management --- Industries: Financial Services --- Financial Markets and the Macroeconomy --- International Factor Movements and International Business: General --- International Investment --- Long-term Capital Movements --- International Finance: General --- International Lending and Debt Problems --- Financial Aspects of Economic Integration --- Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General --- Debt --- Debt Management --- Sovereign Debt --- General Financial Markets: General (includes Measurement and Data) --- Financial Crises --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Economic & financial crises & disasters --- Economics of specific sectors --- Public finance & taxation --- Finance --- Public debt --- Financial sector development --- Financial markets --- Capital markets --- Financial crises --- Nonbank financial institutions --- Financial institutions --- Currency crises --- Informal sector --- Economics --- Debts, Public --- Financial services industry --- Capital market