Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

This study describes a semi-structural New-Keynesian Quarterly Projection Model (QPM) for the WAEMU zone. In the context of a fixed exchange rate regime and relatively tight capital controls, the central bank for the WAEMU monetary union (Banque Centrale des États de l’Afrique de l’Ouest, BCEAO) can exert some influence on the domestic money markets and interest rates. We adjusted the canonical version of a New Keynesian semi-structural Quarterly Projection Model (QPM) to capture that feature and other aspects specific to the BCEAO monetary policy framework, including an implicit foreign exchange reserve target. The model, which is parametrized though and mix of calibration and Bayesian estimation techniques, displays dynamic properties for the main variables in response to various shocks that are in line with theoretical priors and empirical evidence. Medium-term forecasts considering the Covid-19 pandemic produce sensible results when compared with forecast produced by a standard VAR. Moments computed from artificial data generated with the model match well those observed in the data. Overall, the model displays desirable analytical properties and sensible data-matching and forecasting capabilities and could, therefore, be used by the BCEAO to identify relevant shocks, map their propagation into the WAEMU regional economy, and better support its monetary policy decisions.

Macroeconomics --- Economics: General --- Foreign Exchange --- Banks and Banking --- Inflation --- Investments: General --- Money and Monetary Policy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Monetary Policy --- Open Economy Macroeconomics --- Fiscal and Monetary Policy in Development --- Economywide Country Studies: Africa --- Price Level --- Deflation --- Investment --- Capital --- Intangible Capital --- Capacity --- Economic & financial crises & disasters --- Economics of specific sectors --- Currency --- Foreign exchange --- Banking --- Monetary economics --- International reserves --- Central banks --- Prices --- Exchange rate arrangements --- Return on investment --- National accounts --- Real exchange rates --- Currency crises --- Informal sector --- Economics --- Foreign exchange reserves --- Saving and investment --- Monetary policy --- Senegal

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

The paper explores the nexus between the financial and business cycles in a semi-structural New Keynesian model with a financial accelerator, an active banking sector, and an endogenous macroprudential policy reaction function. We parametrize the model for Luxembourg through a mix of calibration and Bayesian estimation techniques. The model features dynamic properties that align with theoretical priors and empirical evidence and displays sensible data-matching and forecasting capabilities, especially for credit indicators. We find that the credit gap, which remained positive during COVID-19 amid continued favorable financial conditions and policy support, had been closing by mid-2022. Model-based forecasts using data up to 2022Q2 and conditional on the October 2022 WEO projections for the Euro area suggest that Luxembourg's business and credit cycles would deteriorate until late 2024. Based on these insights about the current and projected positions in the credit cycle, the model can guide policymakers on how to adjust the macroprudential policy stance. Policy simulations suggest that the weights given to measures of credit-to-GDP and asset price gaps in the macroprudential policy rule should be well-calibrated to avoid unwarranted volatility in the policy response.

Asset requirements --- Banks and Banking --- Banks --- Business cycles --- Business Fluctuations --- Capital adequacy requirements --- Countercyclical capital buffers --- Credit cycles --- Credit --- Cycles --- Depository Institutions --- Economic growth --- Economic policy --- Economywide Country Studies: Europe --- Financial Institutions and Services: Government Policy and Regulation --- Financial Markets and the Macroeconomy --- Financial regulation and supervision --- Financial sector policy and analysis --- Financial services law & regulation --- Government and the Monetary System --- Macroeconomics --- Macroprudential policy --- Micro Finance Institutions --- Monetary economics --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Monetary Systems --- Money and Monetary Policy --- Money --- Mortgages --- Payment Systems --- Prices, Business Fluctuations, and Cycles: Forecasting and Simulation --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Regimes --- Standards

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

In recent years, many Low-Income Countries (LICs) have implemented substantial reforms to their monetary policy frameworks, but existing economic research has not provided a clear rationale to guide those efforts. In this paper we analyze the role of monetary policy frameworks in the propagation of aggregate shocks, using a large panel dataset of 79 LICs over the period 1990-2015 as well as event study analysis for a group of 28 sub-Saharan African LICs. We find highly significant differences in the propagation of external shocks between the LICs that target monetary aggregates or inflation compared to those that maintain rigid nominal exchange rates as a nominal anchor. We also find that the large surprise devaluation of the Central African Franc (CFA) in January 1994 had highly significant effects on the GDP growth of 10 CFA countries compared to 18 similar countries that were outside the CFA zone. Our empirical analysis provides strong support for the role of monetary policy frameworks in facilitating macroeconomic stability in LICs—a conclusion that is particularly relevant as LICs now face a multitude of similar shocks associated with the global COVID-19 pandemic.

Foreign Exchange --- Macroeconomics --- Money and Monetary Policy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Monetary Policy --- Open Economy Macroeconomics --- Fiscal and Monetary Policy in Development --- Economywide Country Studies: Africa --- Macroeconomics: Production --- Energy: Demand and Supply --- Prices --- Monetary economics --- Currency --- Foreign exchange --- Monetary policy frameworks --- Exchange rates --- Production growth --- Inflation targeting --- Oil prices --- Monetary policy --- Production --- Economic theory --- Ghana

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

The paper assesses, using seven structural models used heavily by policymaking institutions, the effectiveness of temporary fiscal stimulus. Models can, more easily than empirical studies, account for differences between fiscal instruments, for differences between structural characteristics of the economy, and for monetary-fiscal policy interactions. Findings are: (i) There is substantial agreement across models on the sizes of fiscal multipliers. (ii) The sizes of spending and targeted transfers multipliers are large. (iii) Fiscal policy is most effective if it has some persistence and if monetary policy accommodates it. (iv) The perception of permanent fiscal stimulus leads to significantly lower initial multipliers.

Banks and Banking --- Macroeconomics --- Money and Monetary Policy --- Public Finance --- Fiscal Policy --- Interest Rates: Determination, Term Structure, and Effects --- Monetary Policy --- National Government Expenditures and Related Policies: Infrastructures --- Other Public Investment and Capital Stock --- Finance --- Monetary economics --- Public finance & taxation --- Fiscal stimulus --- Real interest rates --- Accommodative monetary policy --- Fiscal multipliers --- Public investment spending --- Fiscal policy --- Interest rates --- Monetary policy --- Public investments --- United States