With global supply chains, any value added or production task can be traded as part of goods. This means that competitiveness can be measured either in terms of “tasks” (Bems and Johnson, 2012), or goods, but with goods prices reflecting the cost of tasks embedded in those goods. We show...

The Great Recession underlined that policies in some countries can have profound spillovers elsewhere. Sadly, the solution of simulating large macroeconomic models to measure these spillovers has been found wanting. Typical models generate lower international correlations of output and financial...

Over the past two years, the IMF staff has been developing a new multicountry macroeconomic model called the Global Economy Model (GEM). This paper explains why such a model is needed, how GEM differs from its predecessor model, and how the new features of the model can improve the IMF’s...

Extending recent theoretical contributions on sources of inflation inertia, we argue that monetary uncertainty accounts for sluggish expectations adjustment to nominal disturbances. Estimating a model in which rational individuals learn over time about shifts in U.S. monetary policy and the...

An increasing body of evidence suggests that the behavior of the economy has changed in many fundamental ways over the last decades. In particular, greater financial deregulation, larger wealth accumulation, and better policies might have helped lower uncertainty about future income and lengthen...

We use the IMF's Global Fiscal Model to evaluate recent proposals to reform social security and the tax system in the United States. Introducing personal retirement accounts is unlikely to yield significant macroeconomic benefits unless it spurs additional fiscal consolidation to prevent a large...

We develop a theory-based model of equilibrium exchange rates incorporating factors that have been found to matter empirically. The model provides insights into how variables should be measured and what are appropriate cross-country restrictions. We estimate this model using a panel of 12...

This paper applies the Permanent Income Model to the non-oil current accounts of the major oil exporters to assess the extent to which national consumption decisions in these countries are made on the basis of permanent versus current income. A test of whether the return on oil wealth and oil...

This paper examines the roles of U.S. financial innovation, financial globalization, and the savings glut hypothesis in explaining the rise in U.S. external debt, first in a portfolio balance model, and then empirically. Perhaps surprisingly, financial deepening and falling home bias in...

This paper proposes a markedly different transmission mechanism from monetary policy to the macroeconomy, focusing on how policy changes nominal inertia in the Phillips curve. Using recent theoretical developments, we examine the properties of a small, estimated U.S. monetary model...