## 1mozea2021001 - Preface

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---

### Preface and mission overview
- At the request of the Bank of Mozambique (BM), a Monetary and Capital Markets Department (MCM) Technical Assistance (TA) mission comprising two one-week visits took place in Maputo, Mozambique; the first on July 6–10 and the second on September 16–20, 2019.
- Experts: Kenneth Sæterhagen Paulsen (short-term expert, July), Øistein Røisland and Karsten Gerdrup (September). All three experts are from Norges Bank.
- Mission lead: Kristin Gulbrandsen, MCM Resident Advisor in Mozambique on Central Bank Modernization.
- The mission is part of the Norwegian-funded, multi-year central bank modernization program covering main areas of central banking activities.
- Since October 2017 the modernization project delivered missions on near-term forecasting, monetary policy communication, monetary policy implementation and FX policy, and provided capacity building to improve analytical skills and tools of the forecasting team and sector experts.
- This mission was the fifth on the Forecasting and Policy Analysis System (FPAS) under the program.
- The experts worked daily with management and staff of the Department of Economic Research (DEE). The September mission also met with the Board member and Executive Director of Monetary Stability Directorate, Mr. Jamal Omar.
- Special thanks given to Ms. Ilda Elizabeth Comiche, Mr. Pinho José Ribeiro, and Mr. Helder S. Armando.

### Executive Summary: purpose, approach, targets
- Purpose: Improve understanding of the conduct of monetary policy in an inflation targeting (IT) central bank.
- Capacity building approach:
  - Daily morning seminars introducing modern theory of monetary policy in small-open economies.
  - Afternoon monetary policy analyses based on BM’s quarterly projection model (QPM).
- Target groups:
  - Primarily staff of the Department of Economic Research (DEE).
  - Broader audience included economists from departments having a seat on the Monetary Policy Committee (MPC); morning seminars also included Market and Reserve Management, Macroprudential Analysis, Prudential Supervision and Communication.

### July visit objectives and deliverables
- Prepare for model-based monetary policy exercises in September.
- Develop Matlab codes and routines for impulse-responses, historical shock decompositions, forecast error variance decompositions, and recursive forecasting analysis.
- Make improvements in QPM infrastructure to enable experimentation and development of FPAS.
- Seminar series outline for the MPC drafted to:
  - Reach common understanding of the monetary policy framework and the path towards IT.
  - Explain merits of the modeling system to support interest rate decisions.

### Need for further TA
- IMF/ICD provided TA for 2008–17; BM has not received further assistance since October 2017.
- Modernization project has mainly provided FPAS TA on near-term forecasting and will adjust to assist BM in improving QPM and forecasting process.

### Key Recommendations (Table 1 summary)
- DEE arrange seminars for MPC on:
  - (i) reforming the monetary policy framework into a system closer to IT; and
  - (ii) the merits of the modeling system to support interest rate decisions.
  - Priority: Hig h. Timeframe: Near-term.
- Revise the modeling of the exchange rate in QPM.
  - Priority: Hig h. Timeframe: Near-term.
- Actively use tools introduced by the July and September missions to understand features of QPM and suggest model improvements.
  - Priority: Hig h. Timeframe: Near-term.
- Note: Near term: < 12 months; Medium term: 12 to 24 months.

---

### I. Introduction (context and planned TA)
- BM is reforming its monetary policy framework by moving it closer to IT; IT can be framed as targeting inflation forecasts.
- Forecasting system pillars:
  - Near-term forecasting system.
  - Quarterly model for medium-term forecasting and analysis (QPM).
- IMF/ICD provided TA for developing and maintaining QPM for medium-term forecasting from 2008 to 2017.
- Modernization program provided capacity building and TA on near-term forecasting since 2017.
- DEE has a core modeling team using QPM to provide inputs for the MPC. Near-term forecasting improvements stem from FPAS TA missions (including May 2019).
- Mission activities:
  - Seminars on modern theory of monetary policy in small-open economies.
  - Exercises based on QPM using Matlab procedures introduced in July 2019.
- July 2019 deliverables:
  - Codes for impulse-responses, historical shock decompositions, forecast error variance decompositions, and recursive forecasting.
  - Other infrastructure improvements to QPM.
- Suggested future TA focus:
  - March 2020 mission: empirical analysis of transmission mechanisms of monetary policy, exchange rate shocks, and improvement of the fiscal block.
  - First quarter 2021 mission: improve features and calibration of QPM.
- Note: The March 2020 mission was delivered remotely in July 2020 due to the COVID-19 pandemic.

### II. The Current Situation

#### A. Monetary Policy Framework
- BM is evolving its monetary policy regime towards IT.
- Current practices:
  - Operates FPAS, publishes a monetary policy communique and a monetary policy report in conjunction with monetary policy meetings, and sets policy rate, MIMO, with a view of promoting price stability (i.e., inflation within single digits).
  - Thorough assessment of risks surrounding forecasts and provision of alternative scenarios.
- Challenges in transition towards IT:
  - Reform central bank law to establish clear de jure mandate and enhance operational independence.
  - Set an explicit medium-term inflation objective.
  - Develop a clear communication strategy to anchor inflation expectations and improve accountability.
  - Include explicit medium-term forecasts and alternative scenarios.
- Five daily morning seminars presented main ingredients of a modern IT regime and engaged participants on best practice and BM-specific challenges.

#### B. Medium-term Projection Model (QPM) to Support IT
- QPM is actively used to provide inputs for MPC deliberations; interest rate based framework introduced in April 2017 aided this use.
- DEE now actively uses several small models for near-term forecasting introduced by May 2019 and earlier missions; near-term forecasts serve as starting points for QPM medium-term forecasts.
- July 2019 additions to QPM procedures enabled DEE to analyze:
  - Impulse-responses (IRF)
  - Historical shock decompositions
  - Forecast error variance decompositions (FEVD)
  - Recursive forecasting
- New procedures added in September for:
  - Performing optimal policy using QPM (minimization of a loss function under commitment or discretion).
  - Constructing a policy frontier (trade-off between output and inflation under different Taylor rules).
- QPM uses IRIS program for exercises and was used to analyze transmission mechanisms, policy trade-offs, parameter sensitivity, and preliminary optimal policy exercises.

##### Identified shortcomings and suggested improvements
- IRFs and FEVDs sometimes do not reflect DEE staff views on Mozambique’s economy.
- Role of international factors for output variability likely understated.
- Many IRFs showed very short-lived effects, shorter than evidence from other countries.
- Exchange rate is not responsive to changes in the interest rate—likely due to the model formulation giving high weight to the equilibrium exchange rate (trend) and less to current and future interest rates.
- Suggested simple improvements:
  - Introduce shock processes as AR1-equations and estimate AR1-coefficients and shock standard deviations to better assess size and effects of shocks.
  - Calibrated shocks with unestimated standard deviations can yield misleading historical shock decompositions.
- Exchange rate modelling concerns:
  - Current QPM version implies a constant nominal exchange rate in the long run (model developed for a hybrid regime—partly exchange rate targeting and partly inflation targeting).
  - Nominal exchange rate reverts to implicit/explicit exchange rate target in the long run; domestic price level mean-reverts to level consistent with real exchange rate equilibrium and nominal exchange rate target.
  - Consequence: Post-shock inflation overshoots and undershoots target oscillatory behavior may occur partly independent of monetary policy response.
  - DEE should evaluate whether the exchange rate specification is a reasonable description of the foreign exchange market and Mozambique’s monetary policy regime; consider versions where the nominal exchange rate is non-stationary (example: version used by the Reserve Bank of South Africa).
- Output gap issues:
  - Output gap calculated in QPM is very volatile and does not have a clear role in current discussions on inflationary pressures or monetary policy trade-offs.
  - This reflects high volatility in GDP data; some noise filtering is possible.
  - Further analysis needed on the merits of output stabilization alongside inflation and exchange rate stabilization.

### III. Further Capacity Development and Technical Assistance
- BM should develop a strategy for moving the monetary policy framework towards IT.
- MPC seminar series outline drafted to:
  - Reach common understanding of monetary policy framework, transition towards IT, and merits of modeling system to support interest rate decisions.
  - DEE staff presented a preliminary agenda for two presentations for the MPC on the last day of the mission; these can build on theoretical presentations and QPM exercises.
  - More TA could assist in developing the strategy.
- Further TA needed for maintaining and developing QPM:
  - IMF provided TA for 2008–17; no further assistance since October 2017.
  - Modernization project has provided FPAS TA on near-term forecasting and will adjust to assist BM in improving QPM model and forecasting process.
- Proposed peer-to-peer workshop with the South African Reserve Bank (SARB):
  - SARB forecasting model built on same foundation as BM’s QPM.
  - Workshop topics: compare and discuss QPM models, monetary policy frameworks, and challenges faced by sub-Sahara African central banks.
  - Improved network could facilitate development of internal modeling skills at BM.

---

### Appendix I. Outline of the Program for the September Part of the Mission (selected agenda highlights)
- Day 1
  - 09:00-12:00 Lecture (Røisland): Inflation targeting as a monetary policy framework (goals, alternatives, choice of target, accountability and transparency).
  - 13:30-16:00 QPM model and current monetary policy challenges (Gerdrup/modeling team): role of medium-term forecasts, QPM building blocks (IS curve, Philips curve, exchange rate determination and risk premium, fiscal policy, foreign block, interest rates, role of expectations, commodities).
- Day 2
  - 09:00-12:00 Lecture (Røisland): The standard New Keynesian model and implications for monetary policy (loss function, targeting vs instrument rules, responses to shocks).
  - 13:30-16:00 QPM properties (Gerdrup/modeling team): stylized facts, IRFs, historical shock decomposition, FEVD, calibration assessment, forward guidance puzzle.
- Day 3
  - 09:00-12:00 Lecture (Røisland): Monetary policy in an open economy (small open economy model, optimal responses).
  - 13:30-16:00 QPM exercises with different Taylor rules (Gerdrup/modeling team): assess effects of different policy rules (exchange rate stabilization weight, flexible IT, money growth targeting, nominal GDP targeting, price level targeting approximations), policy frontier, counterfactual analyses, parameter sensitivity, financial stability considerations.
- Day 4
  - 09:00-12:00 Lecture (Røisland): Monetary policy under uncertainty (types of uncertainty, certainty equivalence, Brainard principle, model uncertainty, robust rules, mini-max strategies, risk management).

---

### Part 2. Towards a monetary policy strategy

### What is a monetary policy strategy, and (why) do we need a strategy?
- Key question posed: What is a monetary policy strategy, and (why) do we need a strategy?
- Implied focus: Clarify objectives and consistent operational framework for monetary policy decisions.

### Elements of a strategy
- Listed heading: "Elements of a strategy" (no further detail provided in the source text).

### QPM model exercises (Gerdrup/modeling team)
- Schedule:
  - 13:30-16:00 QPM model exercises (Gerdrup/modeling team)
- Exercise objectives and analysis tasks:
  - Analyze relevant alternative scenarios of economic developments.
  - Consider "What if transmission channel is different (change key parameters in, e.g., Philips curve)."
  - Consider "What if inflation is driven solely by the exchange rate or inflation expectations matter less?"
  - Assess effect of parameter changes on:
    - FEVD
    - IRF
    - historical shock decompositions
    - medium-term forecasts
  - Evaluate whether "Any robust Taylor rule that produce a lower loss in terms of output and inflation variability across different scenarios?"
  - Compare different rules with "standard" Taylor rule.

### Preparing presentation and team work
- Schedule:
  - 16:00-18:00 Preparing presentation (All)
- Tasks implied:
  - Consolidate modeling results and prepare exposition for presentation.

### The time-inconsistency problem and central bank independence (Lecture by Røisland)
- Schedule:
  - Day 5. 09:00-12:00 Lecture (Røisland)
- Lecture topics and subtopics:
  - What is the time-inconsistency problem?
  - Modelling the time-inconsistency problem
    - Barro-Gordon framework
  - How can the time-inconsistency problem be solved/reduced?
    - Rogoff’s "conservative" central banker
    - Other solutions
  - How independendent should central banks be?
    - Independence versus democratic accountability
  - Time-inconsistency and forward guidance

### Finalizing model exercises and presentations
- Schedule:
  - 13:30-16:00 Finalizing model exercises and presentation (Gerdrup/modeling team)
  - 16:00-18:00 Presentation (staff)
- Final exercise aims and questions:
  - Present results from exercises during the week.
  - Define a set of criteria for a good interest rate path ("interest path that strikes the right balance between different objectives").
  - Determine "What kind of Taylor rule is appropriate?"
  - Evaluate trade-offs: "Exchange rate stabilization vs inflation stabilization and/or output stabilization?"

*Source: 1mozea2021001 - Preface (PDF chapter).*

### Preface ................................................................................................................

### 1mozea2021001 - Preface

### Preface
- At the request of the Bank of Mozambique (BM), a Monetary and Capital Markets Department (MCM) Technical Assistance (TA) mission comprising two one-week visits took place in Maputo, Mozambique; the first on July 6–10 and the second on September 16–20, 2019.
- Experts: Kenneth Sæterhagen Paulsen (short-term expert, July), Øistein Røisland and Karsten Gerdrup (September). All three experts are from Norges Bank.
- Mission lead: Kristin Gulbrandsen, MCM Resident Advisor in Mozambique on Central Bank Modernization.
- The mission is part of the Norwegian-funded, multi-year central bank modernization program covering main areas of central banking activities.
- Since October 2017 the modernization project delivered missions on near-term forecasting, monetary policy communication, monetary policy implementation and FX policy, and provided capacity building to improve analytical skills and tools of the forecasting team and sector experts.
- This mission was the fifth on the Forecasting and Policy Analysis System (FPAS) under the program.
- The experts worked daily with management and staff of the Department of Economic Research (DEE). The September mission also met with the Board member and Executive Director of Monetary Stability Directorate, Mr. Jamal Omar.
- Special thanks given to Ms. Ilda Elizabeth Comiche, Mr. Pinho José Ribeiro, and Mr. Helder S. Armando.

### Executive Summary
- Purpose: Improve understanding of the conduct of monetary policy in an inflation targeting (IT) central bank.
- Capacity building approach:
  - Daily morning seminars introducing modern theory of monetary policy in small-open economies.
  - Afternoon monetary policy analyses based on BM’s quarterly projection model (QPM).
- Target groups:
  - Primarily staff of the Department of Economic Research (DEE).
  - Broader audience included economists from departments having a seat on the Monetary Policy Committee (MPC); morning seminars also included Market and Reserve Management, Macroprudential Analysis, Prudential Supervision and Communication.
- July visit objectives:
  - Prepare for model-based monetary policy exercises in September.
  - Develop Matlab codes and routines for impulse-responses, historical shock decompositions, forecast error variance decompositions, and recursive forecasting analysis.
  - Make improvements in QPM infrastructure to enable experimentation and development of FPAS.
- Seminar series outline for the MPC drafted to:
  - Reach common understanding of the monetary policy framework and the path towards IT.
  - Explain merits of the modeling system to support interest rate decisions.
- Need for further TA:
  - IMF/ICD provided TA for 2008–17; BM has not received further assistance since October 2017.
  - Modernization project has mainly provided FPAS TA on near-term forecasting and will adjust to assist BM in improving QPM and forecasting process.

### Key Recommendations (Table 1 summary)
- DEE arrange seminars for MPC on:
  - (i) reforming the monetary policy framework into a system closer to IT; and
  - (ii) the merits of the modeling system to support interest rate decisions.
  - Priority: Hig h. Timeframe: Near-term.
- Revise the modeling of the exchange rate in QPM.
  - Priority: Hig h. Timeframe: Near-term.
- Actively use tools introduced by the July and September missions to understand features of QPM and suggest model improvements.
  - Priority: Hig h. Timeframe: Near-term.
- Note: Near term: < 12 months; Medium term: 12 to 24 months.

### I. Introduction
- BM is reforming its monetary policy framework by moving it closer to IT; IT can be framed as targeting inflation forecasts.
- Forecasting system pillars:
  - Near-term forecasting system.
  - Quarterly model for medium-term forecasting and analysis (QPM).
- IMF/ICD provided TA for developing and maintaining QPM for medium-term forecasting from 2008 to 2017.
- Modernization program provided capacity building and TA on near-term forecasting since 2017.
- DEE has a core modeling team using QPM to provide inputs for the MPC. Near-term forecasting improvements stem from FPAS TA missions (including May 2019).
- Mission activities:
  - Seminars on modern theory of monetary policy in small-open economies.
  - Exercises based on QPM using Matlab procedures introduced in July 2019.
- July 2019 deliverables:
  - Codes for impulse-responses, historical shock decompositions, forecast error variance decompositions, and recursive forecasting.
  - Other infrastructure improvements to QPM.
- Suggested future TA focus:
  - March 2020 mission: empirical analysis of transmission mechanisms of monetary policy, exchange rate shocks, and improvement of the fiscal block.
  - First quarter 2021 mission: improve features and calibration of QPM.
- Note: The March 2020 mission was delivered remotely in July 2020 due to the COVID-19 pandemic.

### II. The Current Situation
#### A. Monetary Policy Framework
- BM is evolving its monetary policy regime towards IT.
- Current practices:
  - Operates FPAS, publishes a monetary policy communique and a monetary policy report in conjunction with monetary policy meetings, and sets policy rate, MIMO, with a view of promoting price stability (i.e., inflation within single digits).
  - Thorough assessment of risks surrounding forecasts and provision of alternative scenarios.
- Challenges in transition towards IT:
  - Reform central bank law to establish clear de jure mandate and enhance operational independence.
  - Set an explicit medium-term inflation objective.
  - Develop a clear communication strategy to anchor inflation expectations and improve accountability.
  - Include explicit medium-term forecasts and alternative scenarios.
- Five daily morning seminars presented main ingredients of a modern IT regime and engaged participants on best practice and BM-specific challenges.

#### B. Medium-term Projection Model (QPM) to Support IT
- QPM is actively used to provide inputs for MPC deliberations; interest rate based framework introduced in April 2017 aided this use.
- DEE now actively uses several small models for near-term forecasting introduced by May 2019 and earlier missions; near-term forecasts serve as starting points for QPM medium-term forecasts.
- July 2019 additions to QPM procedures enabled DEE to analyze:
  - Impulse-responses (IRF)
  - Historical shock decompositions
  - Forecast error variance decompositions (FEVD)
  - Recursive forecasting
- New procedures added in September for:
  - Performing optimal policy using QPM (minimization of a loss function under commitment or discretion).
  - Constructing a policy frontier (trade-off between output and inflation under different Taylor rules).
- QPM uses IRIS program for exercises and was used to analyze transmission mechanisms, policy trade-offs, parameter sensitivity, and preliminary optimal policy exercises.
- Identified shortcomings in QPM:
  - IRFs and FEVDs sometimes do not reflect DEE staff views on Mozambique’s economy.
  - Role of international factors for output variability likely understated.
  - Many IRFs showed very short-lived effects, shorter than evidence from other countries.
  - Exchange rate is not responsive to changes in the interest rate—likely due to the model formulation giving high weight to the equilibrium exchange rate (trend) and less to current and future interest rates.
- Suggested simple improvements:
  - Introduce shock processes as AR1-equations and estimate AR1-coefficients and shock standard deviations to better assess size and effects of shocks.
  - Calibrated shocks with unestimated standard deviations can yield misleading historical shock decompositions.
- Exchange rate modelling concerns:
  - Current QPM version implies a constant nominal exchange rate in the long run (model developed for a hybrid regime—partly exchange rate targeting and partly inflation targeting).
  - Nominal exchange rate reverts to implicit/explicit exchange rate target in the long run; domestic price level mean-reverts to level consistent with real exchange rate equilibrium and nominal exchange rate target.
  - Consequence: Post-shock inflation overshoots and undershoots target oscillatory behavior may occur partly independent of monetary policy response.
  - DEE should evaluate whether the exchange rate specification is a reasonable description of the foreign exchange market and Mozambique’s monetary policy regime; consider versions where the nominal exchange rate is non-stationary (example: version used by the Reserve Bank of South Africa).
- Output gap issues:
  - Output gap calculated in QPM is very volatile and does not have a clear role in current discussions on inflationary pressures or monetary policy trade-offs.
  - This reflects high volatility in GDP data; some noise filtering is possible.
  - Further analysis needed on the merits of output stabilization alongside inflation and exchange rate stabilization.

### III. Further Capacity Development and Technical Assistance
- BM should develop a strategy for moving the monetary policy framework towards IT.
- MPC seminar series outline drafted to:
  - Reach common understanding of monetary policy framework, transition towards IT, and merits of modeling system to support interest rate decisions.
  - DEE staff presented a preliminary agenda for two presentations for the MPC on the last day of the mission; these can build on theoretical presentations and QPM exercises.
  - More TA could assist in developing the strategy.
- Further TA needed for maintaining and developing QPM:
  - IMF provided TA for 2008–17; no further assistance since October 2017.
  - Modernization project has provided FPAS TA on near-term forecasting and will adjust to assist BM in improving QPM model and forecasting process.
- Proposed peer-to-peer workshop with the South African Reserve Bank (SARB):
  - SARB forecasting model built on same foundation as BM’s QPM.
  - Workshop topics: compare and discuss QPM models, monetary policy frameworks, and challenges faced by sub-Sahara African central banks.
  - Improved network could facilitate development of internal modeling skills at BM.

### Appendix I. Outline of the Program for the September Part of the Mission (selected agenda highlights)
- Day 1
  - 09:00-12:00 Lecture (Røisland): Inflation targeting as a monetary policy framework (goals, alternatives, choice of target, accountability and transparency).
  - 13:30-16:00 QPM model and current monetary policy challenges (Gerdrup/modeling team): role of medium-term forecasts, QPM building blocks (IS curve, Philips curve, exchange rate determination and risk premium, fiscal policy, foreign block, interest rates, role of expectations, commodities).
- Day 2
  - 09:00-12:00 Lecture (Røisland): The standard New Keynesian model and implications for monetary policy (loss function, targeting vs instrument rules, responses to shocks).
  - 13:30-16:00 QPM properties (Gerdrup/modeling team): stylized facts, IRFs, historical shock decomposition, FEVD, calibration assessment, forward guidance puzzle.
- Day 3
  - 09:00-12:00 Lecture (Røisland): Monetary policy in an open economy (small open economy model, optimal responses).
  - 13:30-16:00 QPM exercises with different Taylor rules (Gerdrup/modeling team): assess effects of different policy rules (exchange rate stabilization weight, flexible IT, money growth targeting, nominal GDP targeting, price level targeting approximations), policy frontier, counterfactual analyses, parameter sensitivity, financial stability considerations.
- Day 4
  - 09:00-12:00 Lecture (Røisland): Monetary policy under uncertainty (types of uncertainty, certainty equivalence, Brainard principle, model uncertainty, robust rules, mini-max strategies, risk management).

*Source: 1mozea2021001 - Preface (PDF chapter).*

### Part 2. Towards a monetary policy strategy

### Part 2. Towards a monetary policy strategy

### What is a monetary policy strategy, and (why) do we need a strategy?
- Key questions listed:
  - What is a monetary policy strategy, and (why) do we need a strategy?
- Implied focus:
  - Clarify objectives and consistent operational framework for monetary policy decisions.

### Elements of a strategy
- Listed as "Elements of a strategy" (no further detail in source text).

### QPM model exercises (Gerdrup/modeling team)
- Schedule:
  - 13:30-16:00 QPM model exercises (Gerdrup/modeling team)
- Exercise objectives and analysis tasks:
  - Analyze relevant alternative scenarios of economic developments.
  - Consider "What if transmission channel is different (change key parameters in, e.g., Philips curve)."
  - Consider "What if inflation is driven solely by the exchange rate or inflation expectations matter less?"
  - Assess effect of parameter changes on:
    - FEVD
    - IRF
    - historical shock decompositions
    - medium-term forecasts
  - Evaluate whether "Any robust Taylor rule that produce a lower loss in terms of output and inflation variability across different scenarios?"
  - Compare different rules with "standard" Taylor rule.

### Preparing presentation and team work
- Schedule:
  - 16:00-18:00 Preparing presentation (All)
- Tasks implied:
  - Consolidate modeling results and prepare exposition for presentation.

### The time-inconsistency problem and central bank independence (Lecture by Røisland)
- Schedule:
  - Day 5. 09:00-12:00 Lecture (Røisland)
- Lecture topics and subtopics:
  - What is the time-inconsistency problem?
  - Modelling the time-inconsistency problem
    - Barro-Gordon framework
  - How can the time-inconsistency problem be solved/reduced?
    - Rogoff’s "conservative" central banker
    - Other solutions
  - How independendent should central banks be?
    - Independence versus democratic accountability
  - Time-inconsistency and forward guidance

### Finalizing model exercises and presentations
- Schedule:
  - 13:30-16:00 Finalizing model exercises and presentation (Gerdrup/modeling team)
  - 16:00-18:00 Presentation (staff)
- Final exercise aims and questions:
  - Present results from exercises during the week.
  - Define a set of criteria for a good interest rate path ("interest path that strikes the right balance between different objectives").
  - Determine "What kind of Taylor rule is appropriate?"
  - Evaluate trade-offs: "Exchange rate stabilization vs inflation stabilization and/or output stabilization?"

*Source: Part 2. Towards a monetary policy strategy (extracted content).*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1mozea2021001.pdf_