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Exchange rate puzzles and policies
What is the optimal exchange rate policy? Should exchange rates be optimally pegged, managed, or allowed to freely float? What defines a freely floating exchange rate? Do open economies face a trilemma constraint in choosing between inflation...
Central banking with many voices: the communications arms race
Around the world, most central banks set policy by committee. This is motivated in part by the idea that groups reach better decisions than individuals and in part by a desire for representation of different geographical areas and economic...
The three E’s of central-bank communication with the public
Central banks used to ask, “Shall we communicate this?” Now, as a rule, they ask, “Why wouldn’t we communicate this?” This
first wave of the revolution in central-bank communication is giving rise to a second wave. The question increasingly is, “How should we communicate this in a way that engages a ...
Trade exposure and the evolution of inflation dynamics
The Phillips curve—the relationship between price inflation
and fluctuations in economic activity— is a central building block
of economic models that allow for nominal rigidities and are relied
upon by central banks around the world to gauge cyclical inflationary
pressures and forecast inflation. ...
The reversal problem: development going backwards
The Covid-19 pandemic triggered the most synchronous economic downturn in more than a century. Ninety percent of countries posted a decline in real per-capita GDP in 2020, a share that surpassed any other year since 1900, which includes two world...
Credibility of emerging markets, foreign investors’ risk perceptions, and capital flows
Emerging market economies (EMEs) are constantly exposed to shocks that originate in world capital markets, posing serious challenges to policymakers. By dealing with these shocks —Covid-19 representing the most recent event— several lessons have been learned in terms of the ways they
propagate as ...
Fiscal inflation and cosmetic defaults in a small open economy
For a small open economy, maintaining a stable exchange rate and moderate levels of inflation is often a goal of primary importance. At the same time, the profession has recognized the tight link between fiscal and monetary policies in determining...
Inflation globally
The fortunes of the Phillips curve have ebbed and flowed ever
since it was proposed by Phillips (1958). Although its origins are
primarily as an empirical regularity, there is now a vast literature
that provides more formal justification. In recent times, the Great
Moderation and the modern era ...
Sovereign-Debt Crises and Floating-Rate Bonds
The choice of sovereign-debt maturity in countries at risk of default represents a complex set of competing forces. The tradeoffs reflect the underlying frictions present in international sovereign-debt markets. The primary frictions are the lack of state contingency in debt contracts and the inability ...
Integrated annual report 2022
This was a complex year for the Central Bank. Inflation vastly exceeded our 3% target, which forced our institution to make drastic monetary policy decisions, as part of a cycle of rate increases that began the previous year.
Between January and October, the monetary policy rate (MPR) rose from 4.0% ...