Precautionary Monetary and Fiscal Policies PDF Download
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Author: Pelin Berkmen
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 34
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Book Description
This paper explains why the debt reduction motive for countries that are subject to borrowing constraints and a volatile environment is greater than for those with a more stable environment and relatively better access to the financial markets. In particular, it shows that the possibility of losing the ability to borrow in the future induces precautionary debt reduction. When a government loses its ability to borrow, shocks are more costly to the economy, since they cannot be spread over time. The precautionary motive arises from the need to make these adjustments less painful when the borrowing constraints bind. To avoid large losses in the constrained period, the government prefers to raise taxes and inflation in earlier periods more than would be implied otherwise, leaving less debt to the future periods, and thereby shifting some of the required adjustment to the earlier periods. In other words, the coexistence of large shocks and borrowing constraints forces the government to be more prudent in its management of debt.
Author: Pelin Berkmen
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 34
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Book Description
This paper explains why the debt reduction motive for countries that are subject to borrowing constraints and a volatile environment is greater than for those with a more stable environment and relatively better access to the financial markets. In particular, it shows that the possibility of losing the ability to borrow in the future induces precautionary debt reduction. When a government loses its ability to borrow, shocks are more costly to the economy, since they cannot be spread over time. The precautionary motive arises from the need to make these adjustments less painful when the borrowing constraints bind. To avoid large losses in the constrained period, the government prefers to raise taxes and inflation in earlier periods more than would be implied otherwise, leaving less debt to the future periods, and thereby shifting some of the required adjustment to the earlier periods. In other words, the coexistence of large shocks and borrowing constraints forces the government to be more prudent in its management of debt.
Author: International Monetary
Publisher: International Monetary Fund
ISBN: 1616357525
Category : Business & Economics
Languages : en
Pages : 51
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Book Description
Precautionary balances are a key element of the Fund’s multilayered framework to mitigate financial risks. Overall financial risks remain elevated but have not increased significantly since the last review. Staff proposes to leave the medium-term target of SDR 25 billion, and the minimum floor of SDR 15 billion, unchanged at this time. With the projected increase in lending income, the pace of reserve accumulation is expected to remain adequate relative to the medium-term indicative target. The paper also reviews policy factors discussed in recent Board meetings that affect the level and accumulation of reserves.
Author: International Monetary Fund. Finance Dept.
Publisher: International Monetary Fund
ISBN: 1513569562
Category : Business & Economics
Languages : en
Pages : 43
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Book Description
On October 30, 2020, the IMF’s Executive Board reviewed the adequacy of the Fund’s precautionary balances. Precautionary balances, comprising the Fund’s general and special reserves and the Special Contingent Account (SCA-1), are one element of the IMF’s multi-layered framework for managing financial risks. These balances provide a buffer to protect the Fund against potential losses, resulting from credit, income, and other financial risks. This review of the adequacy of the Fund’s precautionary balances took place on the standard two-year cycle, although it was delayed by a few months to allow for an assessment of the impact of the COVID-19 pandemic on Fund financial risks. In conducting the review, the Executive Board applied the rules-based framework agreed in 2010.
Author: International Monetary Fund. Finance Dept.
Publisher: International Monetary Fund
ISBN: 1498307728
Category : Business & Economics
Languages : en
Pages : 55
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Book Description
This paper reviews the adequacy of the Fund’s precautionary balances, using the framework approved by the Board in 2010. The review takes place on the standard two-year cycle and assesses developments since the last review in 2016.
Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1498346057
Category : Business & Economics
Languages : en
Pages : 74
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Book Description
This paper reviews the adequacy of the Fund’s precautionary balances, using the framework approved by the Board in 2010. The review takes place on the standard two-year cycle. The paper discusses developments since the last review in 2014 and revisits several issues discussed at that time. The framework provides an indicative range for the target for precautionary balances linked to credit outstanding, and allows for judgment in setting this target. A reserve coverage ratio of 20-30 percent draws on approaches in other IFIs, adapted to the circumstances of the Fund, and is a guide for determining the target. At the same time, Directors have emphasized the continued importance of judgment and Board discretion in light of a broad assessment of financial risks facing the Fund.
Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1498343805
Category : Business & Economics
Languages : en
Pages : 50
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Book Description
This review of the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Rapid Financing Instrument (RFI) focuses on four key issues: (i) the demand for the FCL and PLL in the context of the broader role of the Fund’s lending (including precautionary) instruments in the global financial safety net (GFSN); (ii) the qualification/conditionality framework for the FCL and the PLL; (iii) concerns about repeated usage of FCL arrangements by the same members and consideration of ways to further improve the transparency in the discussion of access/exit in the underlying staff documents; and (iv) the lack of demand for the RFI.
Author: Mr.Jaewoo Lee
Publisher: International Monetary Fund
ISBN: 1451862172
Category : Business & Economics
Languages : en
Pages : 32
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Book Description
This paper compares the importance of precautionary and mercantilist motives in the hoarding of international reserves by developing countries. Overall, empirical results support precautionary motives; in particular, a more liberal capital account regime increases international reserves. Theoretically, large precautionary demand for international reserves arises as a self-insurance to avoid costly liquidation of long-term projects when the economy is susceptible to sudden stops. The welfare gain from the optimal management of international reserves is of a first-order magnitude, reducing the welfare cost of liquidity shocks from a first-order to a second-order magnitude.
Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1451844239
Category : Business & Economics
Languages : en
Pages : 33
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Book Description
Recently, monetary authorities have increasingly focused on implementing policies to ensure price stability and strengthen central bank independence. Simultaneously, in the fiscal area, market development has allowed public debt managers to focus more on cost minimization. This “divorce” of monetary and debt management functions in no way lessens the need for effective coordination of monetary and fiscal policy if overall economic performance is to be optimized and maintained in the long term. This paper analyzes these issues based on a review of the relevant literature and of country experiences from an institutional and operational perspective.
Author: Richard Hemming
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 60
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Book Description
This paper reviews the theoretical and empirical literature on the effectiveness of fiscal policy. The focus is on the size of fiscal multipliers, and on the possibility that multipliers can turn negative (i.e., that fiscal contractions can be expansionary). The paper concludes that fiscal multipliers are overwhelmingly positive but small. However, there is some evidence of negative fiscal multipliers.
Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1498344658
Category : Business & Economics
Languages : en
Pages : 257
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Book Description
This paper explores how fiscal policy can affect medium- to long-term growth. It identifies the main channels through which fiscal policy can influence growth and distills practical lessons for policymakers. The particular mix of policy measures, however, will depend on country-specific conditions, capacities, and preferences. The paper draws on the Fund’s extensive technical assistance on fiscal reforms as well as several analytical studies, including a novel approach for country studies, a statistical analysis of growth accelerations following fiscal reforms, and simulations of an endogenous growth model.
