Cross-Country Report on Inflation: Selected Issues

International Monetary Fund
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This Selected Issues paper examines the causes and drivers of low inflation in European inflation targeting countries outside the euro area, focusing on the Czech Republic, Poland, Sweden, and Switzerland. It estimates the effects on inflation from the output gap and external factors, including oil price changes, nominal effective exchange rate (NEER) fluctuations, and euro area inflation spillovers. It is observed that external factors have been significant drivers of low inflation recently, though their contributions to inflation and the channels through which they operate vary across countries. Policy responses and options are also discussed, taking into account country-specific circumstances.
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International Monetary Fund
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Published on
Jul 14, 2015
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Business & Economics / International / Economics
Business & Economics / Money & Monetary Policy
Political Science / Public Policy / Economic Policy
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Andreas M. Antonopoulos
James Rickards
In 1971, President Nixon imposed national price controls and took the United States off the gold standard, an extreme measure intended to end an ongoing currency war that had destroyed faith in the U.S. dollar. Today we are engaged in a new currency war, and this time the consequences will be far worse than those that confronted Nixon.


Currency wars are one of the most destructive and feared outcomes in international economics. At best, they offer the sorry spectacle of countries' stealing growth from their trading partners. At worst, they degenerate into sequential bouts of inflation, recession, retaliation, and sometimes actual violence. Left unchecked, the next currency war could lead to a crisis worse than the panic of 2008.

Currency wars have happened before-twice in the last century alone-and they always end badly. Time and again, paper currencies have collapsed, assets have been frozen, gold has been confiscated, and capital controls have been imposed. And the next crash is overdue. Recent headlines about the debasement of the dollar, bailouts in Greece and Ireland, and Chinese currency manipulation are all indicators of the growing conflict.

As James Rickards argues in Currency Wars, this is more than just a concern for economists and investors. The United States is facing serious threats to its national security, from clandestine gold purchases by China to the hidden agendas of sovereign wealth funds. Greater than any single threat is the very real danger of the collapse of the dollar itself.

Baffling to many observers is the rank failure of economists to foresee or prevent the economic catastrophes of recent years. Not only have their theories failed to prevent calamity, they are making the currency wars worse. The U. S. Federal Reserve has engaged in the greatest gamble in the history of finance, a sustained effort to stimulate the economy by printing money on a trillion-dollar scale. Its solutions present hidden new dangers while resolving none of the current dilemmas.

While the outcome of the new currency war is not yet certain, some version of the worst-case scenario is almost inevitable if U.S. and world economic leaders fail to learn from the mistakes of their predecessors. Rickards untangles the web of failed paradigms, wishful thinking, and arrogance driving current public policy and points the way toward a more informed and effective course of action.

From the Hardcover edition.
International Monetary Fund. European Dept.
KEY ISSUES Background: In February 2014, the Executive Board approved a three-year Extended Arrangement with access equivalent to SDR 295.42 million (492.4 percent of quota). So far, three purchases totaling the equivalent of SDR 94.2 million have been made, and another one equivalent to SDR 28.88 million will be made available upon completion of the fourth review. Recent Economic Developments: Economic recovery is underway, but growth remains below potential. The low oil price is expected to have a muted effect on growth and on the balance of payments, as pass-through is weak and Albania is only a small net oil exporter. High non-performing loans (NPLs) make banks risk-averse, and credit growth remains sluggish despite monetary easing. Program Performance and Risks: The program is on track. All end-December 2014 and continuous performance criteria (PCs) and most indicative targets (ITs) were met, with comfortable margins. An exception was the IT on new domestic arrears, which was missed by a small margin; the authorities will repay the arrears by end-April and have taken other corrective measures to prevent arrears from recurring. Inflation has been slightly below the inner band prescribed under the inflation consultation clause. All but one structural benchmarks (SBs) were implemented, though two more were delayed. Delays in the appointment of a new central bank governor as well as in procurement postponed the hiring of an external expert to assist the Bank of Albania’s Audit Committee from February to May 2015. Program risks emanate from external disinflationary pressures, the complexity of electricity sector reforms, and the need for sustained political commitment to fiscal adjustment. The authorities request, and staff supports, a modification of PCs for August and December 2015, and a waiver of applicability for all end-April 2015 PCs. Policy Recommendations: The authorities should shield the 2015 budget deficit target from the risk of falling oil royalties and external disinflationary pressures. Reducing public debt over the medium term will require political commitment to sustain the significant fiscal consolidation which began in 2014. The central bank’s cautious monetary easing is broadly appropriate. Addressing the high stock of NPLs is crucial for reviving credit. The micro-prudential focus on the fastest-growing segments of the banking system is appropriate. Regulatory gaps in nonbank supervision should be filled promptly. While the early results from the authorities’ ambitious power sector reform have been impressive, sustaining the effort is critical.
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