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We study exchange rate dynamics under cooperative and self-oriented policies in a two-country DSGE model with unconventional monetary and exchange rate policies. The cooperative solution features a large exchange rate adjustment that cushions the impact of negative shocks and a moderate use of unconventional policy instruments. Self-oriented policies (Nash equilibrium), however, entail limited exchange rate movements and an aggressive use of unconventional policies in both countries. Our results highlight the role of international policy cooperation in allowing the exchange rate to play the traditional role of shock absorber.

Foreign Exchange --- Investments: Bonds --- Money and Monetary Policy --- Monetary Policy --- Open Economy Macroeconomics --- International Policy Coordination and Transmission --- International Business Cycles --- General Financial Markets: General (includes Measurement and Data) --- Currency --- Foreign exchange --- Investment & securities --- Monetary economics --- Real exchange rates --- Bonds --- Unconventional monetary policies --- Exchange rates --- Financial institutions --- Monetary policy --- United States

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Like everyone else, the IEO is now adapting to new realities in the wake of the coronavirus pandemic. During the five months after the 2019 Annual Meetings, the IEO completed two reports, continued work on two ongoing evaluations, and launched one new evaluation. The IMF also made good progress in following up on past IEO evaluations, including completion of a triage exercise aimed at dealing with the backlog of off-track actions. Unfortunately, IEO work plans are now being affected by the current crisis, as the Fund’s work is necessarily dominated by the challenge of meeting members’ urgent needs. Planned IEO engagement with the Board has been delayed and the schedule for ongoing and new evaluations has to be extended. Nevertheless, the IEO will continue to advance its work program as best it can within the new constraints.

Monetary policy. --- Fiscal policy. --- Banking --- Banks and Banking --- Banks and banking --- Banks --- Commercial policy --- Depository Institutions --- Exports and Imports --- International economics --- International Trade Organizations --- Micro Finance Institutions --- Monetary economics --- Monetary Policy --- Monetary policy --- Money and Monetary Policy --- Mortgages --- Trade Policy --- Trade policy --- Unconventional monetary policies

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The Management Implementation Plan was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity, and financial markets. The actions in this plan and their timeline, therefore, do not reflect the implications of these developments and related policy priorities. The actions aim to: Strengthen in-house expertise on monetary policy; Deepen the work on UMP and related policies; Further strengthen financial spillover analysis; Explore ways to enhance the Fund’s traction.

Monetary policy. --- Balance of payments --- Capital flows --- Capital movements --- Economic policy --- Exports and Imports --- Externalities --- Financial Markets and the Macroeconomy --- Financial sector policy and analysis --- International economics --- International finance --- International Investment --- Long-term Capital Movements --- Macroeconomics --- Macroprudential policy --- Monetary economics --- Monetary Policy --- Monetary policy --- Money and Monetary Policy --- Spillovers --- Unconventional monetary policies --- United Kingdom

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As the recovery in high-income countries firms amid a gradual withdrawal of extraordinary monetary stimulus, developing countries can expect stronger demand for their exports as global trade regains momentum, but also rising interest rates and potentially weaker capital inflows. This paper assesses the implications of a normalization of policy and activity in high-income countries for financial flows and crisis risks in developing countries. In the most likely scenario, a relatively orderly process of normalization would imply a slowdown in capital inflows amounting to 0.6 percent of developing-country GDP between 2013 and 2016, driven in particular by weaker portfolio investments. However, the risk of more abrupt adjustments remains significant, especially if increased market volatility accompanies the unwinding of unprecedented central bank interventions. According to simulations, abrupt changes in market expectations, resulting in global bond yields increasing by 100 to 200 basis points within a couple of quarters, could lead to a sharp reduction in capital inflows to developing countries by between 50 and 80 percent for several months. Evidence from past banking crises suggests that countries having seen a substantial expansion of domestic credit over the past five years, deteriorating current account balances, high levels of foreign and short-term debt, and over-valued exchange rates could be more at risk in current circumstances. Countries with adequate policy buffers and investor confidence may be able to rely on market mechanisms and countercyclical macroeconomic and prudential policies to deal with a retrenchment of foreign capital. In other cases, where the scope for maneuver is more limited, countries may be forced to tighten fiscal and monetary policy to reduce financing needs and attract additional inflows.

Banking Crisis --- Banks and Banking Reform --- Currencies and Exchange Rates --- Debt Markets --- Economic Theory & Research --- Emerging Markets --- Finance and Financial Sector Development --- Financial Globalization --- International Capital Flows --- Macroeconomics and Economic Growth --- Private Sector Development --- Tapering of Quantitative Easing --- Unconventional Monetary Policies

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Las políticas monetarias acomodaticias de las economías avanzadas han estimulado la entrada de capitales en los mercados emergentes desde la crisis financiera internacional. En un episodio que comenzó en mayo de 2013, cuando la Reserva Federal mencionó públicamente los planes de repliegue gradual de las políticas monetarias no convencionales, esos mercados emergentes experimentaron turbulencia financiera, en un momento en que su actividad económica interna se había enfriado. Este estudio examina sus experiencias y políticas de respuesta, y extrae lecciones generales. En los mercados emergentes, la solidez de los fundamentos macroeconómicos es importante, y la adopción sin dilación de medidas decisivas para fortalecer las políticas macroeconómicas y reducir las vulnerabilidades ayuda a suavizar las reacciones de los mercados a los shocks externos. En las economías avanzadas, la comunicación clara y eficaz sobre el retiro de la política monetaria no convencional puede contribuir a alejar el riesgo de volatilidad excesiva en los mercados, lo cual efectivamente ocurrió. Y en la comunidad internacional, la promoción de la cooperación internacional, que debe incluir una sólida red mundial de seguridad financiera, ofrece a los mercados emergentes una protección eficaz ante la volatilidad excesiva.

Exports and Imports --- Foreign Exchange --- Investments: Bonds --- Money and Monetary Policy --- Money and Interest Rates: General --- Financial Markets and the Macroeconomy --- Policy Objectives --- Policy Designs and Consistency --- Policy Coordination --- Fiscal Policy --- International Investment --- Long-term Capital Movements --- General Financial Markets: General (includes Measurement and Data) --- Monetary Policy --- Currency --- Foreign exchange --- International economics --- Investment & securities --- Monetary economics --- Capital flows --- Exchange rates --- Bond yields --- Unconventional monetary policies --- Foreign exchange intervention --- Capital movements --- Bonds --- Monetary policy --- United States