Guy Debelle

What Determines the Current Account? A Cross-Sectional and Panel Approach

This paper uses cross-section and panel data to examine the determinants of the current account. The empirics find a significant impact of the stage of development and demographic factors in the cross section. Estimating partial-adjustment and error-correction models using panel data, the paper finds a short- and long-run impact of fiscal policy on the current account in the time series. The real exchange rate, the business cycle and the terms of trade are also shown to have short-run effects on the current account, while the stage of development and demographics have longer-run effects.

Inflation Targeting in Practice

In recent years, an inflation targeting framework for monetary policy has been adopted in a number of industrial countries. This paper discusses the practical issues that have arisen under the operation of the new framework, and highlights five features of the framework: the assignment of the target, the interaction with other policy goals, the definition of the target, accountability and the role of inflation forecasts. The economic performance of the inflation targeting countries thus far is summarized.

Is the Phillips Curve Really a Curve? Some Evidence for Canada, the United Kingdom, and the United States

Previous tests for convexity in the Phillips curve have been biased because researchers have employed filtering techniques for the nonaccelerating inflation rate of unemployment (NAIRU) that have been fundamentally inconsistent with the existence of convexity. This paper places linear and nonlinear models of the Phillips curve on an equal statistical footing by estimating model-consistent measures of the NAIRU. After imposing plausible restrictions on the variability in the NAIRU, we find that the nonlinear model fits the data best. The implications for the macro-economic policy debate are that policymakers who are unsuccessful in stabilizing the business cycle will induce a higher natural rate of unemployment.

Macroeconomic Implications of Rising Household Debt

Household borrowing has grown considerably in many countries over the past two decades, both in absolute terms and relative to household incomes. Much of the increase can be viewed as a rational response by households to the effects of easing liquidity constraints on households, and lower inflation and borrowing rates. Regardless of whether the increase in debt is sustainable, it has important macroeconomic implications. The household sector will be more sensitive to shocks to interest rates and household incomes, and consumption spending will be more sensitive to changes in expectations of future income. The increased sensitivity will depend crucially on the distribution of debt across the household sector.

Relative Price Variability and Inflation: Evidence from U.S. Cities

We test whether the time-series positive correlation of inflation and intermarket relative price variability is also present in a cross section of U.S. cities. We find this correlation to be a robust empirical regularity: cities that have higher than average inflation also have higher than average relative price dispersion, ceteris paribus. This result holds for different periods of time, for different classes of goods, and across different time horizons. Our results suggest that at least part of the relationship between inflation and relative price variability cannot be explained by monetary factors.

Labour Market Adjustment: Evidence on Interstate LabourMobility

In this paper, we investigate the behaviour of the Australian state labour markets, focusing on the role of geographic labour mobility. We find that interstate migration does play an important role in reducing differences in labour market conditions between states, although permanent (or very persistent) differences between state unemployment rates remain. We also find that out-migration from a state resulting from a relative downturn in its labour market occurs slowly and steadily. Most of the migration takes place, on average, within four years, and the process of adjustment is complete after seven years.

Central Bank Independence: A Free Lunch?

This paper extends the analysis of central bank independence to a model in which there is more than one policymaker. It shows that the degree of central bank independence as generally defined in the existing theoretical literature is only one of the influences on macroeconomic performance. The objectives of the fiscal authority, the commitment mechanisms available to the authorities and the nature of the policy game play a key role in determining the inflation rate and output in the economy. Furthermore, the model can be solved for the optimal degree of inflation aversion of the central bank.

Preliminary Considerations of an Inflation Targeting Framework for the Philippines

Monetary policy in the Philippines has had multiple objectives. Moreover, shifts in money demand and the money multiplier have made base money a less reliable anchor for monetary policy. Hence, on present policies, a steady reduction in inflation is not assured, and changes to the monetary policy framework should be considered. This paper reviews the benefits as well as the constraints of an inflation targeting framework and the necessary preconditions--both in terms of the institutional infrastructure and the appropriate inflation target--for its successful implementation, including the ability to forecast inflation reasonably well over policy-relevant time horizons.

The Evolution of Exchange Rate Policy and Capital Controls in Australia

After the end of the Bretton Woods system in the early 1970s, exchange rate policy in Australia moved through several regimes over an extended period. The overarching theme was to increase flexibility and efficiency in the Australian currency market and the financial system more generally. This paper documents Australias gradual move from a fixed to a floating exchange rate and the abolition of capital controls, with an emphasis on the thinking behind various reforms and the practical difficulties encountered during the reform process. Policy reform was often in response to external forces exposing deficiencies in the prevailing system, rather than through a carefully planned path to greater flexibility. Ultimately, a combination of domestic and international factors rendered the move to a flexible exchange rate largely inevitable.