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The resumption of capital flows to emerging market economies since mid 2009 has posed two sets of interrelated challenges for policymakers: (i) to prevent capital flows from exacerbating overheating pressures and consequent inflation, and (ii) to minimize the risk that prolonged periods of easy financing conditions will undermine financial stability. While conventional monetary policy maintains its role in counteracting the former, there are doubts that it is sufficient to guard against the risks of financial instability. In this context, there have been increased calls for the development of macroprudential measures, with an explicit focus on systemwide financial risks. Against this background, this paper analyses the interplay between monetary policy and macroprudential regulations in an open economy DSGE model with nominal and real frictions. The key result is that macroprudential measures can usefully complement monetary policy. Even under the "optimal policy," which calls for a rather aggressive monetary policy reaction to inflation, introducing macroprudential measures is found to be welfare improving. Broad macroprudential measures are shown to be more effective than those that discriminate against foreign liabilities (prudential capital controls). However, these measures are not a substitute for an appropriate moneraty policy reaction. Moreover, macroprudential measures are less useful in helping economic stability under a technology shock.

Capital movements --- Monetary policy --- Inflation (Finance) --- Financial risk management --- Risk management --- Exports and Imports --- Investments: General --- Labor --- Macroeconomics --- Monetary Policy --- Policy Objectives --- Policy Designs and Consistency --- Policy Coordination --- Open Economy Macroeconomics --- Financial Markets and the Macroeconomy --- Labor Demand --- International Investment --- Long-term Capital Movements --- Investment --- Capital --- Intangible Capital --- Capacity --- Labour --- income economics --- International economics --- Macroprudential policy instruments --- Self-employment --- Capital inflows --- Return on investment --- Macroprudential policy --- Financial sector policy and analysis --- Balance of payments --- National accounts --- Economic policy --- Self-employed --- Saving and investment --- United Kingdom

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The perception that Asia's inflation dynamics is driven by idiosyncratic supply shocks implies, as a corollary, that there is little scope for a policy reaction to a build-up of inflationary pressures. However, Asia's fast growth and integration over the last two decades suggest that the drivers of inflation may have changed, and that domestic demand pressures may now play a larger role than in the past. This paper presents a quantitative analysis of inflation dynamics in Asia using a Global VAR (GVAR) model, which explicitly incorporates the role of regional and global spillovers in driving Asia's inflation. Our results suggest that over the past two decades the main drivers of inflation in Asia have been monetary and supply shocks, but also that, in recent years, the contribution of these shocks has fallen, whereas demand-side pressures have started to emerge as an important contributor to inflation in Asia.

Inflation (Finance) --- Finance --- Natural rate of unemployment --- Econometric models. --- Inflation --- Macroeconomics --- Economic Theory --- Production and Operations Management --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- State Space Models --- Discrete Regression and Qualitative Choice Models --- Discrete Regressors --- Proportions --- Price Level --- Deflation --- Monetary Policy --- International Policy Coordination and Transmission --- Commodity Markets --- Externalities --- Agriculture: Aggregate Supply and Demand Analysis --- Prices --- Macroeconomics: Production --- Economic theory & philosophy --- Commodity prices --- Spillovers --- Supply shocks --- Output gap --- Financial sector policy and analysis --- Economic theory --- Production --- International finance --- Supply and demand --- China, People's Republic of

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Many low-income countries continue to describe their monetary policy framework in terms of targets on monetary aggregates. This contrasts with most modern discussions of monetary policy, and with most practice. We extend the new-Keynesian model to provide a role for “M” in the conduct of monetary policy, and examine the conditions under which some adherence to money targets is optimal. In the spirit of Poole (1970), this role is based on the incompleteness of information available to the central bank, a pervasive issues in these countries. Ex-ante announcements/forecasts for money growth are consistent with a Taylor rule for the relevant short-term interest rate. Ex-post, the policy maker must choose his relative adherence to interest rate and money growth targets. Drawing on the method in Svensson and Woodford (2004), we show that the optimal adherence to ex-ante targets is equivalent to a signal extraction problem where the central bank uses the money market information to update its estimate of the state of the economy. We estimate the model, using Bayesian methods, for Tanzania, Uganda (both de jure money targeters), and Ghana (a de jure inflation targeter), and compare the de facto adherence to targets with the optimal use of money market information in each country.

Monetary policy --- Money --- Banks and Banking --- Inflation --- Money and Monetary Policy --- Production and Operations Management --- Macroeconomics: Production --- Demand for Money --- Price Level --- Deflation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Interest Rates: Determination, Term Structure, and Effects --- Macroeconomics --- Monetary economics --- Finance --- Output gap --- Demand for money --- Monetary aggregates --- Short term interest rates --- Production --- Economic theory --- Prices --- Money supply --- Interest rates --- Uganda

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We provide a multidimensional characterization of monetary policy frameworks across three pillars: Independence and Accountability, Policy and Operational Strategy, and Communications (IAPOC). We construct the IAPOC index by analyzing central banks’ laws and websites for 50 advanced economies, emerging markets, and low-income developing countries, from 2007 to 2018. Due to its scope and granularity, our index provides a holistic view of monetary policy frameworks which goes beyond existing measures of transparency or independence, as well as monetary policy or exchange rate regime classifications. Comparing the IAPOC index across countries and over time, we find that monetary policymaking is varied, fast-changing, and eclectic across the Policy and Operational Strategy and Communications pillars, especially in emerging markets and low-income developing countries.

Macroeconomics --- Economics: General --- Money and Monetary Policy --- Foreign Exchange --- Banks and Banking --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Monetary Policy --- Central Banks and Their Policies --- International Monetary Arrangements and Institutions --- Fiscal and Monetary Policy in Development --- Economic & financial crises & disasters --- Economics of specific sectors --- Monetary economics --- Currency --- Foreign exchange --- Banking --- Monetary policy frameworks --- Monetary policy --- Exchange rate arrangements --- Inflation targeting --- Exchange rate flexibility --- Central bank autonomy --- Central banks --- Currency crises --- Informal sector --- Economics --- New Zealand

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This paper analyzes the domestic and external drivers of local staple food prices in Sub-Saharan Africa. Using data on domestic market prices of the five most consumed staple foods from 15 countries, this paper finds that external factors drive food price inflation, but domestic factors can mitigate these vulnerabilities. On the external side, our estimations show that Sub-Saharan African countries are highly vulnerable to global food prices, with the pass-through from global to local food prices estimated close to unity for highly imported staples. On the domestic side, staple food price inflation is lower in countries with greater local production and among products with lower consumption shares. Additionally, adverse shocks such as natural disasters and wars bring 1.8 and 4 percent staple food price surges respectively beyond generalized price increases. Economic policy can lower food price inflation, as the strength of monetary policy and fiscal frameworks, the overall economic environment, and transport constraints in geographically challenged areas account for substantial cross-country differences in staple food prices.

Ethiopia, The Federal Democratic Republic of