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Using cross-country data for developed and developing countries over the period 1980-2007, we study the effects of the Inflation Targeting regime on levels and volatilities of inflation, GDP growth and fiscal imbalances. Our resul...
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Using cross-country data for developed and developing countries over the period 1980-2007, we study the effects of the Inflation Targeting regime on levels and volatilities of inflation, GDP growth and fiscal imbalances. Our results indicate that the targeting developing countries are associated with lower and more stable inflation, as well as higher and more stable GDP growth. The targeting developed nations experience higher GDP growth and conduct more disciplined fiscal policy after adopting the regime. The improvements in fiscal imbalances may be at least partly attributed to the attempts to achieve an inflation target. We conclude that non-targeting countries, would highly benefit from targeting inflation.
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This paper evaluates the welfare properties of nominal GDP targeting in the context of a New Keynesian model with both price and wage rigidity. In particular, we compare nominal GDP targeting to inflation and output gap targeting ...
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This paper evaluates the welfare properties of nominal GDP targeting in the context of a New Keynesian model with both price and wage rigidity. In particular, we compare nominal GDP targeting to inflation and output gap targeting as well as to a conventional Taylor rule. These comparisons are made on the basis of welfare losses relative to a hypothetical equilibrium with flexible prices and wages. Output gap targeting is the most desirable of the rules under consideration, but nominal GDP targeting performs almost as well. Nominal GDP targeting is associated with smaller welfare losses than a Taylor rule and significantly outperforms inflation targeting. Relative to inflation targeting and a Taylor rule, nominal GDP targeting performs best conditional on supply shocks and when wages are sticky relative to prices. Nominal GDP targeting may outperform output gap targeting if the gap is observed with noise, and has more desirable properties related to equilibrium determinacy than does gap targeting. (C) 2016 Elsevier B.V. All rights reserved.
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This paper explores how sensitive is monetary policy to the precise preferences of the central bank over inflation and economic activity. It does so in order to address a puzzle-which is that the U.S. Fed and the Bank of England a...
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This paper explores how sensitive is monetary policy to the precise preferences of the central bank over inflation and economic activity. It does so in order to address a puzzle-which is that the U.S. Fed and the Bank of England appear to have quite different objectives and yet have adopted strikingly similar policies in recent years. I use a calibrated model to assess how policy might be sensitive to attaching different weights to inflation, output, and the output gap in central bank objectives. I find that a wide range of weights can give rise to rather similar monetary policies.
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This article explores the potential of a target analysis method in acting as a link between policy objectives, targets, measures and their implementation in order to intensify the policy process. The context is the information-abu...
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This article explores the potential of a target analysis method in acting as a link between policy objectives, targets, measures and their implementation in order to intensify the policy process. The context is the information-abundant policy environment where feasibility conditions keep constantly changing. The policy process frameworks for bounded rationality and experiential incrementalism are used as a basis for exploration and complemented with our target analysis, which is tested with a case of Finnish transport policy targets. We argue that by studying synergies and conflicts as well as other dependencies between the targets presented in policy statements and also by examining the possible support or opposition of main stakeholder groups for the policy measures to meet the targets, we can appraise the potential success of the transport policy implementation. Our case study, the Finnish transport policy, presented targets with quite a clear direction, with a lot of weak synergies and only a few serious conflicts. The implementation of the policy measures, presented to meet these targets will, however, be demanding because of several reasons related to the challenges to governance that are emerging from the complex and continually changing linkages between and among transport (policy) problems, targets and their consequences. The method we presented and tested proved to be useful in bringing transport policy targets closer to policy implementation by considering policy measures to meet the targets and their acceptance as a part of the target or objective analysis process. The findings suggest that linking these often detached parts of the policy process together the co-ordination will be improved and the process hence intensified. The target analysis presented could act as an originator for a more open, interactive and particularly systematic process in transport policy formulation, leading through social learning into a more successful implementation of policies.
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In response to the ongoing discussion in the literature of the appropriate framework for monetary policy, we compare two of the most frequently discussed alternatives to inflation targeting-targeting either the level of nominal GD...
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In response to the ongoing discussion in the literature of the appropriate framework for monetary policy, we compare two of the most frequently discussed alternatives to inflation targeting-targeting either the level of nominal GDP or the price level-within the context of a simple vector autoregressive (VAR) model. Our approach can be considered a constrained-discretion approach. The model is estimated using quarterly data over the period 1979:4-2003:4, a period in which the economy was buffeted by substantial supply and demand shocks. The paths of the federal funds rate, nominal GDP, real GDP, and the price level under nominal GDP and price level targeting are simulated over the 2004:1-2006:4 period. We evaluate nominal GDP and price level targeting by computing the values of simple loss functions. The loss function values indicate that closely targeting the path of nominal GDP based on 4.5% desired growth in nominal GDP produces noticeably lower losses in the simulation period than either price level targeting or a continuation of the implicit flexible inflation targeting monetary policy that characterized the estimation period.
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This paper studies how macroprudential policy tools applied to the housing market can complement the interest rate-based monetary policy in achieving one additional stabilization objective, defined as keeping either economic activ...
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This paper studies how macroprudential policy tools applied to the housing market can complement the interest rate-based monetary policy in achieving one additional stabilization objective, defined as keeping either economic activity or credit at some exogenous (and possibly time-varying) levels. We show analytically in a canonical New Keynesian model with housing and collateral constraints that using the loan-to-value (LTV) ratio, tax on credit or tax on property as additional policy instruments does not resolve the inflation-output volatility tradeoff. Perfect targeting of inflation and credit with monetary and macroprudential policy is possible only if the role of housing debt in the economy is sufficiently small. The identified limits to the considered policies are related to their predominantly intertemporal impact on decisions made by financially constrained agents, making them poor complements to monetary policy, which also operates at an intertemporal margin. These limits can be overcome if macroprudential policy is instead designed such that it sufficiently redistributes income between savers and borrowers.
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The fiscal policy environment central banks operate in can be radically different with respect to debt levels, maturity structures and whether or not fiscal adjustments are spending-or tax-based. Despite this, most analyses of mon...
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The fiscal policy environment central banks operate in can be radically different with respect to debt levels, maturity structures and whether or not fiscal adjustments are spending-or tax-based. Despite this, most analyses of monetary policy delegation schemes typically ignore the behavior of the fiscal policy maker. This paper investigates whether delegating either nominal income or price level targets to a monetary authority yields social gains in an economy with government debt, where the fiscal policymaker, acting strategically, may support or undermine the policies of the central bank. We argue that the fiscal environment plays an important role in determining the performance of monetary policy. The gains to price level targeting typically found in the literature can be overturned at empirically relevant debt-to-GDP ratios, when debt stabilization is achieved through spending cuts. In contrast these gains are retained if the fiscal authorities utilize taxes to respond to shocks and stabilize debt. (C) 2017 Elsevier B.V. All rights reserved.
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Abstract The 1.5°C target is now widely considered as the maximum acceptable limit for global warming. However, it is at once recent and, as it appears increasingly unreachable, already almost obsolete. Adopted as an aspirational...
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Abstract The 1.5°C target is now widely considered as the maximum acceptable limit for global warming. However, it is at once recent and, as it appears increasingly unreachable, already almost obsolete. Adopted as an aspirational target in the Paris Agreement in 2015, the 1.5°C objective originated with a political impetus within UNFCCC negotiations. The Intergovernmental Panel on Climate Change (IPCC) endorsed this policy‐driven target when it produced the Special Report on 1.5°C. This article highlights the continuity of the history of the 1.5°C target with that of the 2°C target, but also the differences between the two. Because the 1.5°C target considerably raises the bar on mitigation efforts, it exacerbates political tensions and ambiguities that were already latent in the 2°C target. This article retraces the emergence of the 1.5°C in diplomatic negotiations, the preparation of the IPCC Special report on 1.5°C, and the new kinds of debates they provoked among climate scientists and experts. To explain how an unreachable target became the reference for climate action, we analyze the “political calibration” of climate science and politics, which can also be described as a codependency between climate science and politics. This article is categorized under: Integrated Assessment of Climate Change > Integrated Assessment Modeling Climate, History, Society, Culture > World Historical Perspectives Assessing Impacts of Climate Change > Evaluating Future Impacts of Climate Change
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Background: Translating research findings into health policy often encounters numerous challenges in many African countries, including Cameroon. One of these challenges is the lack of standard tools and procedures to connect resea...
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Background: Translating research findings into health policy often encounters numerous challenges in many African countries, including Cameroon. One of these challenges is the lack of standard tools and procedures to connect researchers to policy makers. A tool such as the Target Policy Profile (TPoP) can help to close this gap, since it is designed to optimize dialogue around the evidence needed to effect a change in policy. In this paper, we assessed the policy making process in Cameroon and suggest how the process can be optimized using the TPoP. ? Methods: This study reports on qualitative data obtained from in-depth interviews of purposively selected individuals, and quantitative data extracted from strategic plans and reports of 17 vertical health programs in Cameroon. Results: The majority (10/17) of our respondents were males and had an average of 6.5 years’ experience in policy making in Cameroon. A relatively small number of interventions/policies (19) were introduced by the assessed programs between 2015-2020. An even smaller number (9) are planned for introduction in the upcoming years. Four major gaps were identified in the policy making process, including lack of standardized methods and tools, limited use of evidence, limited ownership of the process by the state, and limited evaluation of newly introduced policies/interventions. Our respondents considered the TPoP to be a useful tool, which can help improve policy development, implementation, and evaluation across their different programs. Conclusion: The TPoP can help address gaps identified in the health policy making process in Cameroon. Continued advocacy to help stakeholders understand its value proposition as well as training them on its use cases, may facilitate its adoption and use in Cameroon.
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Following a lengthy review, the FOMC recently revised its long-run monetary policy strategy statement, largely in recognition of the persistent threat the effective lower bound (ELB) on policy rates poses to its dual mandate goals...
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Following a lengthy review, the FOMC recently revised its long-run monetary policy strategy statement, largely in recognition of the persistent threat the effective lower bound (ELB) on policy rates poses to its dual mandate goals. Under traditional monetary policy strategies, the ELB imparts a persistent downward bias to inflation and inflation expectations; to offset this, new strategies are needed which will at times deliver inflation above 2%. The new framework addresses this issue and seeks to achieve inflation that averages 2% over time. It also emphasizes that maximum employment is a broad-based and inclusive goal, and that the FOMC should seek to eliminate shortfalls—rather than symmetric deviations—from maximum employment. The FOMC’s September policy statement provided forward guidance that is fully consistent with the new strategy. Historical retrospection of the 2015–2018 liftoff period suggests that, if it were in place over that time, the new framework and forward guidance likely would have forestalled rate increases and potentially delivered better macroeconomic outcomes. More, generally, to reduce employment shortfalls and average 2% inflation over time, the FOMC needs to have an “in it to win it” attitude toward our inflation objective. The September FOMC statement’s forward guidance that inflation should be at 2% and confidently on track for overshooting before we liftoff from the ELB is an important step in that direction.
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