## Appendix A. Parameter Values ## Source details **Canonical URL:** [Appendix A. Parameter Values](https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022015-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/wp/2022/english/wpiea2022015-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/wp/2022/english/wpiea2022015-print-pdf.pdf.json) --- ### Major themes and analytic approach - Joint quantitative analysis of optimal conduct of monetary policy, foreign exchange intervention, fiscal policy, macroprudential policy, and capital flow management for four small open advanced and emerging market economies (Korea, South Africa, Switzerland, Thailand), representing rest of world with the United States. - Model: medium-scale heteroskedastic linearized DSGE model of an asymmetric pair of economies that internalizes nominal rigidities, real rigidities, financial frictions, housing and banking sectors, financial accelerator and endogenous risk mechanisms; integrates fiscal sector and credit constraints; makes central bank balance sheet explicit and inserts a foreign currency liquidity regulation cost wedge into the uncovered interest parity condition; treats domestic and external mortgage and corporate debt as imperfect substitutes and levies capital control taxes on cross-border borrowing. - Key analytic strategy: - Jointly optimize simple instrument rules to minimize an intertemporal quadratic loss function penalizing deviations of inflation from target and output from potential. - Use optimized simple instrument rules to simulate domestic and global financial cycle upturn and downturn scenarios, with and without policy space constraints. - Represent endogenous risk via heteroskedastic structural shocks (conditional variances depend on conditional means). - Estimation: interpret linearized heteroskedastic DSGE as joint probability model; estimate a restricted version by Bayesian maximum likelihood, consolidate weakly identified shocks for estimation, then run scenario analysis under the unrestricted model. ### Substantive findings and policy insights - General principle: economies with larger international trade and financial exposures should more actively use foreign exchange intervention and capital flow management if these policies are effective and response thresholds are crossed. - When unconstrained: - Monetary policy plays the primary role in stabilizing consumption price inflation and output. - Foreign exchange intervention enhances monetary autonomy by supporting inflation stabilization; any destabilizing effect on output is offset by fiscal policy. - Macroprudential policy and capital flow management have smaller effects on conditional means of consumption price inflation and the output gap but materially help safeguard financial stability and lean against developments that raise growth-at-risk. - Optimized policy-rule findings (highlights): - All optimized response coefficients are positive — implying systematic use of all policy instruments on average across states. - Many optimized adjustments fall short of conventional discrete thresholds (e.g., 25 basis point monetary increments), implying foreign exchange intervention, macroprudential policy and capital flow management will rarely be triggered except by large, reinforcing shocks. - Economies with larger trade and financial exposures should more actively use FX intervention and capital flow management. ### Calibrated steady-state equilibrium parameters (selected, as reported) - Housing depreciation rate: H = 0.0500 /S (evaluated at S = 4 corresponds to annualized 5.0 percent). - Private physical capital depreciation rate: K = 0.1000 /S (evaluated at S = 4 corresponds to annualized 10.0 percent). - Public capital depreciation rate: G = 0.0750 /S (evaluated at S = 4 corresponds to annualized 7.5 percent). - Steady-state annualized mortgage loan rate: Hi = 0.0400 /S (4.0 percent annualized). - Steady-state annualized corporate loan rate: Fi = 0.0600 /S (6.0 percent annualized). - Mortgage loan amortization rate: H = 0.0250. - Corporate loan amortization rate: F = 0.0500. - Loan markups: Y = 1.2500, X = 1.2500, M = 1.2500 (implying 25 percent markups). - Example country steady-state shares (CY, IY, HIY, KIY, GY, CGY, IGY, MY): - /CY: Korea 0.5122 | South Africa 0.6050 | Switzerland 0.5463 | Thailand 0.5292 | United States 0.6761 - /IY: Korea 0.2523 | South Africa 0.1588 | Switzerland 0.2096 | Thailand 0.1820 | United States 0.1699 - /HIY: Korea 0.0362 | South Africa 0.0362 | Switzerland 0.0314 | Thailand 0.0362 | United States 0.0410 - /KIY: Korea 0.2161 | South Africa 0.1226 | Switzerland 0.1782 | Thailand 0.1458 | United States 0.1289 - /GY: Korea 0.2356 | South Africa 0.2362 | Switzerland 0.2441 | Thailand 0.2888 | United States 0.1540 - /CGY: Korea 0.1717 | South Africa 0.1997 | Switzerland 0.2154 | Thailand 0.2126 | United States 0.1134 - /IGY: Korea 0.0639 | South Africa 0.0365 | Switzerland 0.0287 | Thailand 0.0762 | United States 0.0406 - /MY: Korea 0.1831 | South Africa 0.1678 | Switzerland 0.2988 | Thailand 0.2909 | United States ... - Note: calibration is a function of the seasonal frequency S, evaluated at S = 4. ### Calibrated behavioral parameters (selected, Table 5) - Consumption habit persistence: C = 0.8000 for all five countries. - Labor supply habit/adjustment: L = 0.8000 for all five countries. - Intertemporal elasticity / preference and related: -  = 1.0000 for all five countries. -  = 1.0000 for all five countries. - Investment adjustment costs: H = 3.0000, K = 3.0000 for all five countries. - Intratemporal elasticity of substitution in labor supply:  = 0.5000. - Share of credit constrained households: advanced economies C = 0.2000 (Korea, Switzerland, United States); emerging economies C = 0.2500 (South Africa, Thailand). - Partial indexation parameters: Y = 0.8000, L = 0.8000, X = 0.8000, M = 0.8000 for all five countries. - Price/wage reoptimization intervals (expressed via ·): - Output price and wage: 8 quarters in advanced economies, 6 quarters in emerging economies (represented in calibration as Y and L expressions). - Export and import prices: 6 quarters (X, M). - Nominal mortgage and corporate loan rate average adjustment: implied 4-quarter average adjustment (B = (4.0000 1) / 4.0000). - International contagion coefficients: - Advanced economies: B = 40 percent, S = 50 percent. - Emerging economies: B = 60 percent, S = 75 percent. - Other selected parameters: - B = 0.5000; K = 1.0000; B = 25.0000. - CH = 0.3000 | CB = 0.3000 | CS = 0.0500. - FB = 0.7500 | FH = 0.2000 | FF = 0.0500. - Import and external bank credit demand elasticities: M = 0.5000; B = 0.5000. ### Calibrated policy-rule parameters (Table 6, selected) - Monetary policy: - Interest-rate persistence: Bi = 0.8000 for all five countries. - Consumption inflation response: C = 2.0000 for all five countries. - Output response: GY = 0.5000 /S (evaluated at S = 4). - Foreign exchange intervention: - steady state reserve ratio r: Korea 0.2317S | South Africa 0.1026S | Switzerland 0.4730S | Thailand 0.3633S | United States 0.0029S. - response coefficient on real exchange rate: r = 0.1000S for all four small open economies; United States r = 0.0000S. - Fiscal rules: - fiscal persistence G = 0.8000; responses CG = 1.0000, IG = 1.0000 for all five countries. - tax rates (steady state): K: Korea 0.0868 | South Africa 0.1700 | Switzerland 0.1119 | Thailand 0.1336 | United States 0.0572. - L: Korea 0.0506 | South Africa 0.1260 | Switzerland 0.0874 | Thailand 0.0278 | United States 0.1450. - C: Korea 0.1058 | South Africa 0.1411 | Switzerland 0.1139 | Thailand 0.1662 | United States 0.0619. - Macroprudential and LTV rules: - steady state bank capital ratio R = 0.0500 for all five countries (5.0 percent where expressed annually). - LTV limits: H = 0.8000 | F = 0.8000 for all five countries (80 percent). - LTV response coefficients: H = 0.5000 | F = 0.5000 for all five countries. - Capital flow management: - response coefficients H and F are specified with country-formatted (·) identities in the source (reproduced verbatim in tables). ### Estimated conditional variance function parameters and posterior highlights (Table 9, selected) - Model estimated on levels of 31 endogenous variables for four pairs of economies over 2001Q1 to 2019Q4 (Korea, Switzerland advanced; South Africa, Thailand emerging paired with the United States). - Posterior modes and standard errors (selected parameters, country order Korea | South Africa | Switzerland | Thailand): - ˆA Mode / SE: 1.1144 / 0.0550 | 1.4748 / 0.0654 | 1.0573 / 0.0524 | 1.8838 / 0.0739 - ˆN Mode / SE: 1.6746 / 0.0704 | 2.8410 / 0.0858 | 1.5044 / 0.0664 | 1.6016 / 0.0687 - ˆC Mode / SE: 2.1211 / 0.0776 | 1.8379 / 0.0724 | 1.6246 / 0.0692 | 2.9187 / 0.0859 - ˆY Mode / SE: 25.2219 / 0.8290 | 15.9204 / 0.7565 | 15.3141 / 0.6715 | 21.5679 / 0.7857 - ˆL Mode / SE: 18.0707 / 0.8038 | 29.6099 / 0.8676 | 24.1758 / 0.8177 | 24.8969 / 0.8262 - M Mode / SE: 0.6042 / 0.0478 | 0.8695 / 0.0459 | 0.5506 / 0.0491 | 0.4291 / 0.0485 - F Mode / SE: 0.5540 / 0.0463 | 0.5522 / 0.0493 | 0.4644 / 0.0484 | 0.5239 / 0.0470 - Y Mode / SE: 0.0836 / 0.0097 | 0.0932 / 0.0097 | 0.0796 / 0.0098 | 0.0536 / 0.0098 - Posterior findings: - data very informative for many conditional variance function parameters with substantial updates from prior to posterior. - negative correlation between conditional mean and variance of output growth ranges from -0.14 to -0.49 across economies (endogenous risk / growth-at-risk mechanism). ### Policy-rule calibration and optimized response coefficients (selected optimized results) - Government loss function: flexible inflation targeting with dual mandate; weight on output fluctuations 0 = 0.50; instrument smoothing weights i = 1.00 for all i = 1,...,N. Evaluate conditional means and variances of annualized arguments out 25 years. Numerically minimize intertemporal loss subject to inequality constraints. - Optimized monetary policy response to inflation (C): - Korea 1.6663; South Africa 1.5050; South Africa (labelled "South") 1.5050; Africa 1.4337; Switzerland 1.7387. - Optimized monetary policy response to output (GY) (parameterization is a function of seasonal frequency S, evaluated at S = 4): - Korea 0.8447/S; South 0.1787/S; Africa 0.6652/S; Switzerland 0.3137/S. - Optimized foreign exchange intervention response (r): - Korea 0.0258S; South 0.0036S; Africa 0.0481S; Switzerland 0.0032S. - Optimized fiscal policy responses: - CG: Korea 1.6330; South 0.9694; Africa 1.6255; Switzerland 1.3297. - IG: Korea 1.5909; South 0.9079; Africa 1.6179; Switzerland 1.2938. - Optimized macroprudential responses: - R: Korea 0.0166; South 0.0094; Africa 0.0161; Switzerland 0.0100. - H: Korea 0.0854; South 0.0438; Africa 0.0481; Switzerland 0.0439. - F: Korea 0.0723; South 0.0560; Africa 0.0889; Switzerland 0.0503. - Optimized capital flow management responses reported in source with (·) formatted entries (reproduced in tables). ### Scenario design and key numerical assumptions (selected) - Financial cycle upturn (phased in over two years; small open economy experiences currency appreciation): - Layer 1 Asset prices: term premium, duration risk premium shocks -50 basis points; housing relative price +5 percent; equity relative price +10 percent; real exchange rate and foreign currency liquidity shocks +/-5 percent. - Layer 2 Bank credit: mortgage loan spread shocks -50 basis points; corporate loan spread shocks -100 basis points. - Layer 3 Confidence: private consumption demand shocks +0.5 percent; residential investment demand shocks +2.0 percent; business investment demand shocks +2.0 percent. - Financial cycle downturn (phased in over one year; small open economy experiences currency depreciation): - Layer 1 Asset prices: term premium, duration risk premium shocks +100 basis points; housing relative price -10 percent; equity relative price -20 percent; real exchange rate and foreign currency liquidity shocks +/-10 percent. - Layer 2 Bank credit: mortgage loan spread shocks +100 basis points; corporate loan spread shocks +200 basis points. - Layer 3 Confidence: private consumption demand shocks -1.0 percent; residential investment demand shocks -4.0 percent; business investment demand shocks -4.0 percent. - Simulation axis ranges for unconstrained and constrained scenarios are reported precisely in Appendices C and D (figures and axis ranges reproduced as in source). ### Transmission mechanisms — impulse-response quantitative highlights - Monetary policy (interbank rate cut of one percentage point): - consumption price inflation peak: boost of 0.2 to 0.3 percentage points after 2 to 4 quarters. - output peak: 0.3 to 0.4 percent after 3 to 4 quarters. - Foreign exchange intervention (reserve sales: foreign exchange reserve ratio down by one percentage point): - currency appreciates by 1.5 percent on impact in nominal and real terms. - Fiscal multipliers (peak output multipliers, ranges across economies): - public consumption stimulus: 0.7 to 1.0. - public investment stimulus: 0.7 to 1.1 (more persistent due to productivity gains). - corporate tax cut: 0.1 to 0.2. - labor income tax cut: 0.4 to 0.6. - consumption tax cut: 0.5 to 0.8. - targeted transfer payment stimulus: 0.7 to 1.2. ### Policy implications and limitations - Policy implications: - Monetary policy should remain the primary stabilizer of inflation and output when unconstrained; FX intervention and fiscal policy play supporting roles; macroprudential and capital flow management are useful for containing financial vulnerabilities and growth-at-risk. - Active use of FX intervention and capital flow management is especially valuable in economies with large trade openness and unhedged foreign-currency debt exposures. - Key caveats: - Endogenous risk specification not microfounded; slope coefficients may not be invariant to policy rule changes (Lucas (1976) critique). - Frequent use of FX intervention and capital controls can alter the structural characteristics and transmission mechanisms of financial markets. - Loss function from inflation-targeting literature does not equal representative household welfare maximization; policy-rule restrictions may depart from unconstrained optimum. - Joint optimization abstracts from institutional constraints that may preclude such coordination in practice. *Source: wpiea2022015-print-pdf - Appendix A. Parameter Values; https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022015-print-pdf.pdf* ### Appendix A. Parameter Values ........................................................................................... ### Appendix A. Parameter Values ### Appendix listing and page references - Appendix A. Parameter Values — 59 - Appendix B. Transmission Mechanisms — 64 - Appendix C. Unconstrained Scenarios — 77 - Appendix D. Constrained Scenarios — 81 *Source: wpiea2022015-print-pdf - Appendix A. Parameter Values; https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022015-print-pdf.pdf* ### References ............................................................................................................. ### wpiea2022015-print-pdf - References (Selected Content Unit) ### Major themes and contributions - Joint quantitative analysis of the optimal conduct of monetary policy, foreign exchange intervention, fiscal policy, macroprudential policy, and capital flow management for four small open advanced and emerging market economies (Korea, South Africa, Switzerland, Thailand), representing rest of world with the United States. - Development and estimation of a medium-scale heteroskedastic linearized DSGE model of an asymmetric pair of economies that: - Internalizes nominal rigidities, real rigidities, financial frictions, housing and banking sectors, financial accelerator and endogenous risk mechanisms. - Integrates fiscal sector and credit constraints to generate empirically plausible fiscal multipliers. - Makes central bank balance sheet explicit and inserts a wedge into the uncovered interest parity condition via a foreign currency liquidity regulation cost to model foreign exchange intervention effects. - Treats domestic and external mortgage and corporate debt as imperfect substitutes and levies capital control taxes on cross-border borrowing to capture capital flow management. ### Key analytic approach - Jointly optimize simple instrument rules governing decentralized policy instruments to minimize an intertemporal quadratic loss function penalizing deviations of inflation from target and output from potential. - Use optimized simple instrument rules to simulate domestic and global financial cycle upturn and downturn scenarios, with and without policy space constraints. - Represent the world economy by a DSGE model featuring endogenous risk through heteroskedastic structural shocks (conditional variances depend on conditional means) — aligning with growth-at-risk and related literatures. - Estimation strategy: interpret the linearized heteroskedastic DSGE as a joint probability model; estimate a restricted version by Bayesian maximum likelihood, consolidate weakly identified shocks for estimation, then run scenario analysis under the unrestricted model. ### Substantive findings (policy insights) - A general principle: economies with larger international trade and financial exposures should more actively use foreign exchange intervention and capital flow management if these policies are effective and response thresholds are crossed. - Intuition: foreign exchange intervention is more effective where trade openness increases exchange rate pass-through and expenditure switching; capital flow management is more effective where large unhedged foreign currency debt exposures amplify financial vulnerabilities and growth-at-risk. - When unconstrained: - Monetary policy plays the primary role in stabilizing consumption price inflation and output. - Foreign exchange intervention enhances monetary autonomy by supporting inflation stabilization; any destabilizing effect on output is offset by fiscal policy. - Macroprudential policy and capital flow management have smaller effects on conditional means of consumption price inflation and the output gap, but they contribute to macroeconomic stability by safeguarding financial stability and leaning against financial developments that raise growth-at-risk. ### Model architecture (concise) - Two asymmetric structurally isomorphic open economies with households (credit unconstrained ZU and credit constrained ZC), firms, banks and a government with monetary, fiscal and macroprudential authorities. - Key mechanisms: - Nominal and real rigidities (Christiano–Eichenbaum–Evans, Smets–Wouters, Monacelli foundations). - Housing and banking sectors with collateralized borrowing (Kiyotaki–Moore financial accelerator). - Endogenous risk: negative correlation between conditional mean and variance of output growth (growth-at-risk). - Foreign exchange intervention modeled via central bank balance sheet and foreign currency liquidity regulation cost (Gabaix–Maggiori motivation). - Capital controls as taxes on cross-border borrowing (tariff analogy). ### Representative calibrated steady-state and behavioral parameter values (as reported) - Steady-state and calibration choices: - Housing depreciation rate: H = 5.0 percent (annualized). - Private physical capital depreciation rate: K = 10.0 percent (annualized). - Public capital depreciation rate: G = 7.5 percent (annualized). - Steady-state annualized mortgage loan rate: iH = 4.0 percent. - Steady-state annualized corporate loan rate: iF = 6.0 percent. - Mortgage loan amortization rate: H = 2.5 percent (annualized). - Corporate loan amortization rate: F = 5.0 percent (annualized). - Mortgage loan default rate (steady state): H = 1.0 percent (annualized). - Corporate loan default rate (steady state): F = 2.0 percent (annualized). - Output, export and import steady-state price markups set to imply 25 percent markups. - Behavioral/calibrated parameter examples: - Consumption habit persistence C = 0.8. - Labor supply habit/adjustment L = 0.8. - Subjective discount factor  set to imply a steady-state annualized interbank rate of 2.0 percent. - Intertemporal elasticity of substitution in consumption  = 1.0. - Intratemporal elasticity of substitution in labor supply  = 0.5. - Share of credit constrained households: advanced economies C = 20 percent; emerging economies C = 25 percent. - Residential and business investment adjustment cost parameters: H = 3.0, K = 3.0. - Partial indexation parameters: output price Y = 0.8; wage L = 0.8; export price X = 0.8; import price M = 0.8. - Average reoptimization intervals (nominal rigidities): - Output price and wage: 8 quarters in advanced economies, 6 quarters in emerging economies. - Export and import prices: 6 quarters. - Nominal mortgage and corporate loan rate adjustment interval parameter B implies 4-quarter average adjustment. - Intratemporal elasticities of substitution: imports M = 0.5; external bank credit demand B = 0.5. - International bond and stock market contagion coefficients: - Advanced economies: B = 40 percent, S = 50 percent. - Emerging economies: B = 60 percent, S = 75 percent. ### Policy-rule and shock specification highlights (selected) - Monetary policy rule: interbank rate reacts inertially to expected future consumption price inflation and contemporaneous output gap; parameters include persistence Bi, consumption inflation response C = 2.0, and output-gap response GY (calibrated as reported in model tables). - Foreign exchange intervention rule: foreign exchange reserve ratio responds to deviations of the real exchange rate; parameters include persistence r and responsiveness r. - Fiscal rules: - Public consumption and investment follow countercyclical expenditure rules with persistence G and responsiveness ZG. - Tax rates on corporate earnings, labor income and consumption follow acyclical fiscal revenue rules with persistence  and autoregressive specification. - Transfer payment rules (nondiscretionary and discretionary) stabilize net foreign asset ratio and public debt ratio respectively with parameters N T and D T. - Macroprudential rules: - Regulatory bank capital ratio follows a countercyclical capital buffer rule with persistence R and responsiveness . - Loan-to-value limits for mortgage and corporate lending follow partial adjustment rules with persistence  and responsiveness . - Heteroskedastic shock structure: - Conditional variances of macro shocks (productivity, demand, duration) are loglinear functions of past changes and levels of domestic and foreign output gaps (parameters M, Y etc.). - Conditional variances of financial shocks (duration, housing, equity, foreign currency liquidity) are loglinear functions of past changes and levels of domestic and foreign financial gaps (parameters F, F etc.). - Many structural shocks follow AR(1) processes; some markup shocks are serially uncorrelated. ### Empirical strategy and estimation choices - Linearize equilibrium conditions around a stationary deterministic steady state; augment state-space with flexible trend components to account for balanced growth and structural breaks. - Augment with state-dependent conditional heteroskedasticity to capture endogenous risk (conditional variances depend on conditional means), producing a nonlinear empirical framework for estimation and forecasting. - Estimation via Bayesian maximum likelihood on a restricted model that consolidates/eliminates weakly identified shocks; thereafter use unrestricted model for scenario analysis. - Calibration and estimation split: parameters entering conditional mean are calibrated (many subject to cross-economy equality restrictions); parameters in conditional variance function are estimated. *IMF Working Paper — A Medium-Scale DSGE Model for the Integrated Policy Framework (selected content units from the provided PDF excerpt).* ### 0.5 at the annual frequency. In the foreign exchange intervention rule, the steady state equilibrium fore ### A Medium-Scale DSGE Model for the Integrated Policy Framework ### Calibration and Estimated Parameters - Foreign exchange intervention rule: - steady state equilibrium foreign exchange reserve ratio r set to its sample average value for the economy under consideration. - response coefficient on the real exchange rate r set to 0.1 at the annual frequency. - Fiscal expenditure rules: - response coefficients for public consumption CG and investment IG with respect to the output gap are both set to 1.0. - Fiscal revenue rules: - steady state equilibrium corporate K, labor income L and consumption C tax rates set to their sample average values for the economy under consideration. - Countercyclical capital buffer rule: - steady state equilibrium bank capital ratio R set to 5.0 percent. - response coefficient on real bank credit R set to 0.1. - Loan to value limit rules: - steady state equilibrium mortgage H and corporate F loan to value ratio limits both set to 80 percent. - response coefficients on real mortgage H and corporate F debt both set to 0.5. - Capital flow management rules: - response coefficients on the real domestic currency denominated value of external mortgage H and corporate F debt both set to 0.1 at the annual frequency. - Trend component parameters: - common speed of convergence parameter  set to imply a half life of deviations from the long run balanced growth path of 10 years. - constant inflation , productivity growth g and population growth n rates set to their sample average values for the economy under consideration. - Estimated model: - restricted heteroskedastic linearized DSGE model estimated on levels of 31 endogenous variables for four pairs of economies over 2001Q1 to 2019Q4. - small open economies paired with the United States: Korea, Switzerland (advanced); South Africa, Thailand (emerging). - observed variables include: gross domestic product price deflator, real GDP, headline CPI, real private consumption, real private investment, real exports, real imports, nominal policy interest rate, benchmark long-term nominal government bond yield, house price index, equity price index, credit to the nonfinancial private sector, nominal bilateral exchange rate, nominal wage index, unemployment rate, and employment. - Switzerland and the United States: the estimated shadow nominal policy interest rate substitutes for the observed nominal policy interest rate to account for the effective lower bound. - data sources: IMF GDS database where available, BIS or HAVER otherwise. - Shock consolidation and elimination in the restricted model: - consolidated residential and business investment demand shocks into an investment demand shock. - consolidated public consumption and investment demand shocks into a public demand shock. - consolidated mortgage and corporate loan to value limit shocks into a loan to value limit shock. - eliminated: mortgage and corporate loan markup shocks, mortgage and corporate loan default shocks, export and import price markup shocks, foreign exchange intervention shock, corporate/labor income/consumption tax rate shocks, transfer payment shock, bank capital requirement shock, mortgage and corporate capital control shocks. - Posterior findings: - data very informative for many conditional variance function parameters with substantial updates from prior to posterior. - prior means of slope parameters for state dependent conditional heteroskedasticity aligned with Adrian and Vitek (2020); posterior modes exhibit substantial economy specific deviations. ### Inference — Business and Financial Cycles - Output and financial gap estimates summarize business and financial cycles: - output gap estimates indicate abrupt synchronized contractions during the global financial crisis (GFC) across economies, followed by recoveries of varying intensity driven by capital and labor utilization fluctuations. - financial gap estimates indicate synchronized financial cycle downturns during the GFC, followed by upturns that lag business cycle recoveries, reflecting credit cycle dynamics and asset price adjustments. - Historical decompositions: - consumption price inflation deviations from trend primarily attributed to macroeconomic shocks, especially price and wage markup shocks. - output growth deviations around trend primarily attributed to macroeconomic and financial shocks, particularly demand and risk premia shocks. - adverse demand and risk premia shocks in the United States identified as primary drivers of GFC business cycle contractions. - policy shocks identified as countercyclical mitigants of those business cycle contractions, particularly in advanced economies. ### Forecasting and Risk - Forecast performance: - sequential dynamic forecasts of consumption price inflation and output growth track observed realizations reasonably accurately. - over holdout sample 2005Q2 to 2019Q4, root mean squared prediction error is 19 to 40 percent lower for consumption price inflation, and 40 to 46 percent lower for output growth, on average across horizons, relative to a random walk. - Conditional distributions and risks: - the entire conditional distribution of output growth evolves over time; both location and scale shift with macrofinancial conditions, often negatively correlated, generating downside skewness especially in stress periods. - the conditional distribution of consumption price inflation is roughly symmetric. - conditional lower quantile of output growth is more volatile than its conditional mean, which is more volatile than its conditional upper quantile. - negative correlation between conditional mean and variance of output growth ranges from -0.14 to -0.49 across economies. - consumption price inflation conditional lower and upper quantiles are roughly equally volatile, reflecting dependence on conditionally homoskedastic price and wage markup shocks. ### Policy Analysis — Transmission Mechanisms (Impulse Responses) - Monetary policy (interbank rate cut): - lowers bank lending rates, raises asset prices, stimulates private domestic demand (residential and business investment). - currency depreciates nominally and real terms, slightly increasing exports and moderating import rise. - output expands more than potential; output gap rises; unemployment falls; price and wage inflation rise. - import price inflation increases, amplifying consumption price inflation. - quantitative impacts: lowering interbank rate by one percentage point boosts consumption price inflation by 0.2 to 0.3 percentage points peak after 2 to 4 quarters, and output by 0.3 to 0.4 percent peak after 3 to 4 quarters. - bank credit rises with mortgage and corporate debt. - fiscal deficit ratio initially falls due to valuation gain on foreign exchange reserves; current account balance ratio falls reducing net foreign asset ratio. - Foreign exchange intervention (reserve sales): - appreciates currency, slightly decreasing exports and moderately raising imports. - quantitative: lowering foreign exchange reserve ratio by one percentage point appreciates currency by 1.5 percent on impact in nominal and real terms. - output contracts more than potential; output gap falls; unemployment rises; price and wage inflation fall. - import price inflation reduces, amplifying fall in consumption price inflation. - central bank cuts interbank rate to mitigate falls in consumption price inflation and output gap; bank credit eventually rises while external debt falls via valuation. - fiscal deficit ratio initially increases due to valuation loss on reserves; current account balance ratio eventually falls reducing net foreign asset ratio. - Fiscal policy: - public consumption or investment stimulus: boosts public demand, raises fiscal deficit and public debt ratios; output expands more than potential; output gap rises; unemployment falls; price and wage inflation rise. - peak output multipliers: public consumption stimulus ranges from 0.7 to 1.0; public investment stimulus ranges from 0.7 to 1.1 across economies. Public investment effects more persistent due to productivity gains. - central bank hikes interbank rate; currency appreciates; private demand initially rises then falls as financial conditions tighten; substitution to external mortgage and corporate debt occurs; current account balance ratio falls reducing net foreign asset ratio. - corporate, labor income, consumption tax cuts: - corporate tax cut: peak output multiplier ranges from 0.1 to 0.2; expands output more than potential by incentivizing labor demand; central bank hikes interbank rate. - labor income tax cut: peak output multiplier ranges from 0.4 to 0.6; expands output less than potential by incentivizing labor supply; central bank cuts interbank rate. - consumption tax cut: peak output multiplier ranges from 0.5 to 0.8; expands output less than potential; central bank cuts interbank rate. - bank credit rises with mortgage or corporate debt; current account balance ratio falls reducing net foreign asset ratio. - targeted transfer payment stimulus: - peak output multiplier ranges from 0.7 to 1.2 across economies; output expands more than potential; central bank hikes interbank rate; residential and business investment rise then fall; bank credit rises then falls; substitution to external debt; current account balance ratio falls reducing net foreign asset ratio. - Macroprudential policy: - countercyclical capital buffer increase: - widens bank lending spreads; banks accumulate capital via retained earnings; mortgage and corporate loan rates increase; residential and business investment decline. - output contracts more than potential; output gap falls; unemployment rises; price and wage inflation fall. - central bank cuts interbank rate to mitigate falls; bank credit falls; substitution from domestic to external debt occurs. - fiscal deficit ratio increases raising public debt ratio; current account balance ratio increases raising net foreign asset ratio. - mortgage or corporate loan to value limit reduction: - residential or business investment falls; mortgage or corporate debt falls; bank credit falls. - output contracts more than potential; output gap falls; unemployment rises; price and wage inflation fall. - central bank cuts interbank rate; fiscal deficit ratio increases raising public debt ratio; current account balance ratio increases raising net foreign asset ratio. - Capital flow management (capital control tightening): - raises cost of cross-border mortgage or corporate borrowing; households/firms substitute from external to domestic debt; bank credit rises; residential or business investment falls. - output contracts more than potential; output gap falls; unemployment rises; price and wage inflation falls. - central bank cuts interbank rate; currency depreciates only slightly in real terms. - fiscal deficit ratio falls due to higher capital control revenues reducing public debt ratio; current account balance ratio increases raising net foreign asset ratio. ### Optimized Policy Rules - Government loss function: - flexible inflation targeting regime with dual mandate; weight on output fluctuations 0 set to 0.50. - instrument smoothing weights i set to 1.00 for all i = 1,...,N. - evaluate conditional means and variances of annualized arguments out 25 years; average intertemporal loss across historical states under long run commitment; numerically minimize with respect to response coefficients subject to inequality constraints. - Optimized response coefficients (Table 1 highlights): - monetary policy response to inflation (C): Korea 1.6663; South 1.5050; Africa 1.4337; Switzerland 1.7387. - monetary policy response to output (GY): Korea 0.8447/S; South 0.1787/S; Africa 0.6652/S; Switzerland 0.3137/S. (Note: parameterization is a function of seasonal frequency S, evaluated at S = 4.) - foreign exchange intervention response (r): Korea 0.0258S; South 0.0036S; Africa 0.0481S; Switzerland 0.0032S. - fiscal policy responses (CG, IG): - CG: Korea 1.6330; South 0.9694; Africa 1.6255; Switzerland 1.3297. - IG: Korea 1.5909; South 0.9079; Africa 1.6179; Switzerland 1.2938. - macroprudential policy responses: - R: Korea 0.0166; South 0.0094; Africa 0.0161; Switzerland 0.0100. - H: Korea 0.0854; South 0.0438; Africa 0.0481; Switzerland 0.0439. - F: Korea 0.0723; South 0.0560; Africa 0.0889; Switzerland 0.0503. - capital flow management responses (as reported in source): - H: (0.,2)018 HH fi (0.,4)012 HH fi (0.,1)017 HH fi (0.,9)010 HH fi - F: (0.,5)020 FF fi (0.,9)018 FF fi (0.,8)017 FF fi (0.,1)011 FF fi - interpretation: - all optimized response coefficients are positive — implying systematic use of all policy instruments on average across states. - in practice many optimized adjustments fall short of conventional discrete thresholds (e.g., 25 basis point monetary increments), implying foreign exchange intervention, macroprudential policy and capital flow management will rarely be triggered except by large, reinforcing shocks. - economies with larger trade and financial exposures should more actively use foreign exchange intervention and capital flow management. - optimized use of foreign exchange intervention and capital flow management is conditional on their effectiveness (e.g., B > 0 ensures FX intervention affects real exchange rate) and on the existence of foreign currency denominated unhedged external debt exposures. ### Optimized Policy Responses — Financial Cycle Scenarios - Scenario design: - harmonized stylized scenarios for domestic and global financial cycle upturns and downturns; scenario assumptions expressed as deviations from baseline at the annual frequency and phased in over one or two years as specified. - Financial cycle upturn scenario assumptions (Table 2): - Layer 1: Asset prices - Term premium, duration risk premium shocks -50 basis points - Relative price of housing, housing risk premium shocks +5 percent - Relative price of equity, equity risk premium shocks +10 percent - Real exchange rate, foreign currency liquidity shocks +/-5 percent - Layer 2: Bank credit - Mortgage loan spread, mortgage loan markup shocks -50 basis points - Corporate loan spread, corporate loan markup shocks -100 basis points - Layer 3: Confidence - Private consumption demand shocks +0.5 percent - Residential investment demand shocks +2.0 percent - Business investment demand shocks +2.0 percent - All assumptions phased in over two years; under both domestic and global upturn scenarios the small open economy experiences currency appreciation. - Financial cycle upturn dynamics and policy mix: - looser financial conditions and higher confidence stimulate private domestic demand and investment; output initially expands more than potential; consumption price inflation falls due to currency appreciation. - financial vulnerabilities build up (higher bank credit, mortgage and corporate debt, especially external corporate debt). - policy responses: - monetary policy primary role in stabilizing inflation and output; in some cases central bank hikes interbank rate even as consumption price inflation falls. - foreign exchange intervention supports stabilizing consumption price inflation via reserve purchases to depreciate currency. - countercyclical fiscal consolidation moderates output via lower public consumption and investment. - macroprudential tightening (higher countercyclical capital buffer, lower loan-to-value limits) leans against buildup of vulnerabilities. - capital flow management tightens corporate capital controls to restrain external corporate debt. - quantitative roles: - monetary policy dominates conditional mean stabilization; FX intervention and fiscal policy play supporting roles; macroprudential policy and capital flow management have smaller effects on conditional means but materially help contain financial vulnerability buildups in highly exposed economies. - Financial cycle downturn scenario assumptions (Table 3): - Layer 1: Asset prices - Term premium, duration risk premium shocks +100 basis points - Relative price of housing, housing risk premium shocks -10 percent - Relative price of equity, equity risk premium shocks -20 percent - Real exchange rate, foreign currency liquidity shocks +/-10 percent - Layer 2: Bank credit - Mortgage loan spread, mortgage loan markup shocks +100 basis points - Corporate loan spread, corporate loan markup shocks +200 basis points - Layer 3: Confidence - Private consumption demand shocks -1.0 percent - Residential investment demand shocks -4.0 percent - Business investment demand shocks -4.0 percent - All assumptions phased in over one year; under both domestic and global downturn scenarios the small open economy experiences currency depreciation. - Financial cycle downturn dynamics and policy mix: - tighter financial conditions and lower confidence depress private demand and investment; output initially contracts more than potential; consumption price inflation rises due to currency depreciation. - financial vulnerabilities unwind (lower bank credit, lower mortgage and corporate debt, particularly external corporate debt). - policy responses: - monetary policy primary role in stabilizing inflation and output; central bank often cuts interbank rate if inflation expectations well anchored and trade openness low, but may hike otherwise. - foreign exchange intervention (reserve sales) leans against depreciation and reduces need for procyclical monetary tightening. - countercyclical fiscal stimulus (higher public consumption and investment) supports output. - macroprudential easing (lower countercyclical capital buffer, higher loan-to-value limits) supports credit supply and demand. - capital flow management eases corporate capital controls to limit corporate borrowing retrenchment. - quantitative roles: - monetary policy dominates conditional mean stabilization; other tools support financial stability and help mitigate output losses, especially where vulnerable financial exposures are large. *Italic: Extracted sections from the IMF Working Paper "A Medium-Scale DSGE Model for the Integrated Policy Framework" (selected pages and figures as provided).* ### Appendix D. Foreign exchange intervention plays a supporting role in reducing consumption price inflation ### Appendix D. Foreign exchange intervention plays a supporting role in reducing consumption price inflation to ### Role of foreign exchange intervention and accompanying policies - Foreign exchange intervention plays a supporting role in reducing consumption price inflation to target through reserve sales to appreciate the currency. - The destabilizing effect of foreign exchange intervention on output is offset by fiscal policy, through expenditure based fiscal stimulus. - Automatic fiscal stabilizers are allowed to operate fully, further mitigating the output contraction. - Macroprudential policy and capital flow management have much smaller effects on the conditional means of consumption price inflation and the output gap, but: - They help maintain macroeconomic stability by safeguarding financial stability. - They support domestic bank credit supply, as well as domestic and cross-border bank credit demand. ### VI. CONCLUSION — model, scope, and purpose - Recurrent capital inflow and outflow surges—often associated with domestic or global financial cycle upturns and downturns—confront policymakers in small open advanced and emerging market economies with complex policy tradeoffs. - To maintain macroeconomic and financial stability amid volatile capital flows, policymakers use a toolkit spanning monetary policy, foreign exchange intervention, fiscal policy, macroprudential policy, and capital flow management. - Optimally adjusting such a high dimensional policy mix in response to shocks while internalizing tradeoffs requires an IPF. ### Model constructed and empirical application - The paper develops and estimates a medium-scale heteroskedastic linearized DSGE model of the world economy, disaggregated into a pair of asymmetric economies, to help support the IPF. - The model integrates the full range of policies used to cope with recurrent capital inflow and outflow surges. - The model is applied to four small open advanced and emerging market economies. ### Main findings from optimal policy analysis - The analysis broadly supports observed tendencies of economies to respond to domestic or global financial cycle upturns and downturns with eclectic policy mix adjustments. - Economies with larger international trade and financial exposures should more actively use foreign exchange intervention and capital flow management, under some conditions. - Simulations of domestic and global financial cycle upturn and downturn scenarios, conditional on optimized policy rules, yield: - When unconstrained, monetary policy plays the primary role in stabilizing consumption price inflation and output. - Foreign exchange intervention enhances monetary autonomy through a supporting role in stabilizing consumption price inflation. - The destabilizing effect of foreign exchange intervention on output under these scenarios is offset by fiscal policy. - Macroprudential policy and capital flow management lean against financial developments that put growth at risk. ### Key caveats and limitations - The specification of the endogenous risk mechanism is not derived from microeconomic foundations; its slope coefficients may not be invariant to policy rule changes, exposing the analysis to the critique due to Lucas (1976). - Frequent use of foreign exchange intervention and capital flow management can change structural characteristics of the financial markets on which these policies operate, altering their transmission mechanisms. - The loss function adopted from the inflation targeting literature is inconsistent with the model: choosing response coefficients of policy rules to minimize it does not maximize the welfare of the representative household. - The policy rules restrict the functional dependence of policy instruments on intermediate targets to postulated simple linear relationships, so their policy prescriptions may depart from the unconstrained optimum. - Jointly optimizing these policy rules disregards institutional realities that may preclude such a high degree of policy coordination in practice. - Despite these caveats, the authors view the model as a useful approximation and the policy analysis framework as a powerful tool to guide policymakers in adjusting their policy mix to cope with capital flow surges in an integrated way. *IMF WORKING PAPERS A Medium-Scale DSGE Model for the Integrated Policy Framework INTERNATIONAL MONETARY FUND 59* ### Appendix A. Parameter Values ### Appendix A. Parameter Values ### Calibrated Steady State Equilibrium Parameters (Table 4) - Countries: Korea | South Africa | Switzerland | Thailand | United States - /CY: 0.5122 | 0.6050 | 0.5463 | 0.5292 | 0.6761 - /IY: 0.2523 | 0.1588 | 0.2096 | 0.1820 | 0.1699 - /HIY: 0.0362 | 0.0362 | 0.0314 | 0.0362 | 0.0410 - /KIY: 0.2161 | 0.1226 | 0.1782 | 0.1458 | 0.1289 - /GY: 0.2356 | 0.2362 | 0.2441 | 0.2888 | 0.1540 - /CGY: 0.1717 | 0.1997 | 0.2154 | 0.2126 | 0.1134 - /IGY: 0.0639 | 0.0365 | 0.0287 | 0.0762 | 0.0406 - /MY: 0.1831 | 0.1678 | 0.2988 | 0.2909 | ... - /YWL P Y: 0.6667 | 0.6667 | 0.6667 | 0.6667 | 0.6667 - Yw: 0.0689 | 0.0186 | 0.0340 | 0.0194 | ... - ,/HfY DPY: 0.0001S | 0.0024S | 0.0061S | 0.0011S | ... - ,/FfY DPY: 0.0401S | 0.0585S | 0.0365S | 0.0266S | ... - /GY DPY: 0.3126S | 0.4072S | 0.4721S | 0.4220S | 0.8572S - H: 0.0500 /S | 0.0500 /S | 0.0500 /S | 0.0500 /S | 0.0500 /S - K: 0.1000 /S | 0.1000 /S | 0.1000 /S | 0.1000 /S | 0.1000 /S - G: 0.0750 /S | 0.0750 /S | 0.0750 /S | 0.0750 /S | 0.0750 /S - Hi: 0.0400 /S | 0.0400 /S | 0.0400 /S | 0.0400 /S | 0.0400 /S - Fi: 0.0600 /S | 0.0600 /S | 0.0600 /S | 0.0600 /S | 0.0600 /S - H: 0.0250 | 0.0250 | 0.0250 | 0.0250 | 0.0250 - F: 0.0500 | 0.0500 | 0.0500 | 0.0500 | 0.0500 - Y: 1.2500 | 1.2500 | 1.2500 | 1.2500 | 1.2500 - X: 1.2500 | 1.2500 | 1.2500 | 1.2500 | 1.2500 - M: 1.2500 | 1.2500 | 1.2500 | 1.2500 | 1.2500 - Note: The calibration is a function of the seasonal frequency S, evaluated at 4S. Also, (·) satisfactions as specified in the source. ### Calibrated Behavioral Parameters (Table 5) - Countries: Korea | South Africa | Switzerland | Thailand | United States - C: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - L: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 -  +1/(1 0.0200 / )S ... : 1 / (1 0.0200 / )S repeated for all countries - H: 3.0000 | 3.0000 | 3.0000 | 3.0000 | 3.0000 - K: 3.0000 | 3.0000 | 3.0000 | 3.0000 | 3.0000 - B: 0.5000 | 0.5000 | 0.5000 | 0.5000 | 0.5000 - : 0.5000 | 0.5000 | 0.5000 | 0.5000 | 0.5000 - K: 1.0000 | 1.0000 | 1.0000 | 1.0000 | 1.0000 - B: 25.0000 | 25.0000 | 25.0000 | 25.0000 | 25.0000 - Y: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - L: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - X: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - M: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - B: 0.9000 /S | 0.9000 /S | 0.9000 /S | 0.9000 /S | ... - A: 0.5000 | 0.5000 | 0.5000 | 0.5000 | 0.0000 - B: 0.4000 | 0.6000 | 0.4000 | 0.6000 | 0.0000 - S: 0.5000 | 0.7500 | 0.5000 | 0.7500 | 0.0000 - : 0.5000 | 0.5000 | 0.5000 | 0.5000 | 0.5000 - L: 0.0500 | 0.0500 | 0.0500 | 0.0500 | 0.0500 - X: 0.0500 | 0.0500 | 0.0500 | 0.0500 | 0.0500 - M: 0.0500 | 0.0500 | 0.0500 | 0.0500 | 0.0500 - Y: (8.0000 1) / 8.0000 | (6.0000 1) / 6.0000 | (8.0000 1) / 8.0000 | (6.0000 1) / 6.0000 | (8.0000 1) / 8.0000 - L: (8.0000 1) / 8.0000 | (6.0000 1) / 6.0000 | (8.0000 1) / 8.0000 | (6.0000 1) / 6.0000 | (8.0000 1) / 8.0000 - X: (6.0000 1) / 6.0000 for all five countries - M: (6.0000 1) / 6.0000 for all five countries - B: (4.0000 1) / 4.0000 for all five countries - G: 0.9500 | 0.9500 | 0.9500 | 0.9500 | 0.9500 - A: 0.9500 | 0.9500 | 0.9500 | 0.9500 | 0.9500 - C: 0.2000 | 0.2500 | 0.2000 | 0.2500 | 0.2000 - CH: 0.3000 | 0.3000 | 0.3000 | 0.3000 | 0.3000 - CB: 0.3000 | 0.3000 | 0.3000 | 0.3000 | 0.3000 - CS: 0.0500 | 0.0500 | 0.0500 | 0.0500 | 0.0500 - FB: 0.7500 | 0.7500 | 0.7500 | 0.7500 | 0.7500 - FH: 0.2000 | 0.2000 | 0.2000 | 0.2000 | 0.2000 - FF: 0.0500 | 0.0500 | 0.0500 | 0.0500 | 0.0500 - M: 0.5000 | 0.5000 | 0.5000 | 0.5000 | 0.5000 - B: 0.5000 | 0.5000 | 0.5000 | 0.5000 | 0.5000 - TA: 0.9500 | 0.9500 | 0.9500 | 0.9500 | 0.9500 - C: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - : 1.0000 for all five countries - : 1.0000 for all five countries - H: (0.,7)066 HH fi repeated for all countries per source formatting - F: (0.,3)133 FF fi repeated for all countries per source formatting - F: 0.2500 | 0.2500 | 0.2500 | 0.2500 | 0.2500 - ^2: 0.0500 /S | 0.0500 /S | 0.0500 /S | 0.0500 /S | ... - Note: The calibration is a function of the seasonal frequency S, evaluated at 4S. Also, (·) identities as specified in the source. ### Calibrated Policy Rule Parameters (Table 6) - Countries: Korea | South Africa | Switzerland | Thailand | United States - Bi: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - C: 2.0000 | 2.0000 | 2.0000 | 2.0000 | 2.0000 - GY: 0.5000 /S | 0.5000 /S | 0.5000 /S | 0.5000 /S | 0.5000 /S - r: 0.2317S | 0.1026S | 0.4730S | 0.3633S | 0.0029S - r: 0.1000S | 0.1000S | 0.1000S | 0.1000S | 0.0000S - G: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - CG: 1.0000 | 1.0000 | 1.0000 | 1.0000 | 1.0000 - IG: 1.0000 | 1.0000 | 1.0000 | 1.0000 | 1.0000 - K: 0.0868 | 0.1700 | 0.1119 | 0.1336 | 0.0572 - L: 0.0506 | 0.1260 | 0.0874 | 0.0278 | 0.1450 - C: 0.1058 | 0.1411 | 0.1139 | 0.1662 | 0.0619 - : 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - NT: 0.1000 /S | 0.1000 /S | 0.1000 /S | 0.1000 /S | 0.1000 /S - DT: 0.1000 /S | 0.1000 /S | 0.1000 /S | 0.1000 /S | 0.1000 /S - R: 0.0500 | 0.0500 | 0.0500 | 0.0500 | 0.0500 - R: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - R: 0.1000 | 0.1000 | 0.1000 | 0.1000 | 0.1000 - H: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - F: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - : 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - H: 0.5000 | 0.5000 | 0.5000 | 0.5000 | 0.5000 - F: 0.5000 | 0.5000 | 0.5000 | 0.5000 | 0.5000 - C: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - H: (0.,0)100 HH fi repeated for all countries per source formatting - F: (0.,0)100 FF fi repeated for all countries per source formatting (United States entry shown as (0.,0)000 FF fi) - Note: The calibration is a function of the seasonal frequency S, evaluated at 4S. Also, (·) identities as specified in the source. ### Calibrated Trend Component Parameters (Table 7) - Countries: Korea | South Africa | Switzerland | Thailand | United States - : exp( ln 2 / (10 ))S | exp( ln 2 / (10 ))S | exp( ln 2 / (10 ))S | exp( ln 2 / (10 ))S | exp( ln 2 / (10 ))S - : 1.8769 /S | 6.2544 /S | 0.3977 /S | 2.6296 /S | 1.8909 /S - g: 2.4014 /S | 0.9396 /S | 0.6663 /S | 2.9058 /S | 1.1898 /S - n: 1.2544 /S | 1.6237 /S | 1.3279 /S | 0.8301/S | 0.7503 /S - Note: The calibration is a function of the seasonal frequency S, evaluated at 4S. ### Calibrated Exogenous Variable Parameters (Table 8) - Countries: Korea | South Africa | Switzerland | Thailand | United States - A: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - N: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - C: 0.4000 | 0.4000 | 0.4000 | 0.4000 | 0.4000 - I: 0.6000 | 0.6000 | 0.6000 | 0.6000 | 0.6000 - X: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - M: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - B: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - H: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - S: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - C: 0.6000 | 0.6000 | 0.6000 | 0.6000 | 0.6000 - : 0.4000 | 0.4000 | 0.4000 | 0.4000 | 0.4000 - : 0.4000 | 0.4000 | 0.4000 | 0.4000 | 0.4000 - P: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - r: 0.4000 | 0.4000 | 0.4000 | 0.4000 | 0.4000 - G: 0.4000 | 0.4000 | 0.4000 | 0.4000 | 0.4000 - : 0.4000 | 0.4000 | 0.4000 | 0.4000 | 0.4000 - T: 0.8000 | 0.8000 | 0.8000 | 0.8000 | 0.8000 - : 0.4000 | 0.4000 | 0.4000 | 0.4000 | 0.4000 - : 0.4000 | 0.4000 | 0.4000 | 0.4000 | 0.4000 - C: 0.4000 | 0.4000 | 0.4000 | 0.4000 | 0.4000 ### Estimated Conditional Variance Function Parameters (Table 9) - Prior mean and SD for listed parameters: see table headers (Prior Mean / Prior SD). - Posterior (Mode and SE) by country (Korea | South Africa | Switzerland | Thailand): - ˆA Mode / SE: 1.1144 / 0.0550 | 1.4748 / 0.0654 | 1.0573 / 0.0524 | 1.8838 / 0.0739 - ˆN Mode / SE: 1.6746 / 0.0704 | 2.8410 / 0.0858 | 1.5044 / 0.0664 | 1.6016 / 0.0687 - ˆC Mode / SE: 2.1211 / 0.0776 | 1.8379 / 0.0724 | 1.6246 / 0.0692 | 2.9187 / 0.0859 - ˆI Mode / SE: 1.9646 / 0.0762 | 1.9723 / 0.0763 | 1.8053 / 0.0733 | 2.6449 / 0.0843 - ˆX Mode / SE: 1.9010 / 0.0744 | 1.9831 / 0.0759 | 2.4499 / 0.0822 | 2.2082 / 0.0791 - ˆM Mode / SE: 1.6164 / 0.0689 | 1.6421 / 0.0695 | 1.9000 / 0.0746 | 1.7255 / 0.0713 - ˆB Mode / SE: 0.4508 / 0.0182 | 0.5639 / 0.0197 | 0.3774 / 0.0166 | 0.5121 / 0.0192 - ˆH Mode / SE: 0.5479 / 0.0266 | 0.6126 / 0.0287 | 0.5265 / 0.0257 | 0.5867 / 0.0280 - ˆS Mode / SE: 2.3880 / 0.0797 | 2.2356 / 0.0779 | 1.7589 / 0.0704 | 2.5416 / 0.0812 - ˆ Mode / SE: 1.8231 / 0.0799 | 2.3456 / 0.0823 | 1.5644 / 0.0778 | 1.4175 / 0.0748 - ˆY Mode / SE: 25.2219 / 0.8290 | 15.9204 / 0.7565 | 15.3141 / 0.6715 | 21.5679 / 0.7857 - ˆL Mode / SE: 18.0707 / 0.8038 | 29.6099 / 0.8676 | 24.1758 / 0.8177 | 24.8969 / 0.8262 - ˆP Mode / SE: 0.5383 / 0.0268 | 0.4643 / 0.0250 | 0.4410 / 0.0231 | 0.5379 / 0.0267 - ˆBi Mode / SE: 0.2101 / 0.0110 | 0.1728 / 0.0097 | 0.1450 / 0.0081 | 0.1884 / 0.0101 - ˆG Mode / SE: 2.2103 / 0.0797 | 2.1405 / 0.0810 | 3.1335 / 0.0879 | 2.8321 / 0.0859 - ˆ Mode / SE: 1.7241 / 0.0822 | 1.6114 / 0.0818 | 1.6523 / 0.0825 | 1.6679 / 0.0840 - M Mode / SE: 0.6042 / 0.0478 | 0.8695 / 0.0459 | 0.5506 / 0.0491 | 0.4291 / 0.0485 - F Mode / SE: 0.5540 / 0.0463 | 0.5522 / 0.0493 | 0.4644 / 0.0484 | 0.5239 / 0.0470 - Y Mode / SE: 1.3821 / 0.0892 | 0.8927 / 0.0860 | 0.8553 / 0.0887 | 1.1128 / 0.0900 - Y Mode / SE: 0.0836 / 0.0097 | 0.0932 / 0.0097 | 0.0796 / 0.0098 | 0.0536 / 0.0098 - F Mode / SE: 0.2580 / 0.0238 | 0.2541 / 0.0235 | 0.2656 / 0.0239 | 0.2305 / 0.0236 - F Mode / SE: 0.1022 / 0.0089 | 0.0454 / 0.0081 | 0.0793 / 0.0090 | 0.0822 / 0.0088 - Additional posterior standard deviations and modes for variance components (selected): - YP (Korea) Mode / SE: 0.0348 / 0.0057; (South Africa) 0.7850 / 0.0492; (Switzerland) 0.0260 / 0.0045; (Thailand) 0.0366 / 0.0058 - Y (Korea) Mode / SE: 0.0484 / 0.0073; (South Africa) 0.0434 / 0.0078; (Switzerland) 0.0223 / 0.0046; (Thailand) 0.0412 / 0.0073 - CP (Korea) Mode / SE: 0.0360 / 0.0055; (South Africa) 0.0494 / 0.0067; (Switzerland) 0.0223 / 0.0038; (Thailand) 0.0380 / 0.0063 - C (Korea) Mode / SE: 0.0351 / 0.0064; (South Africa) 0.0516 / 0.0082; (Switzerland) 0.0225 / 0.0039; (Thailand) 0.0441 / 0.0080 - I (Korea) Mode / SE: 0.0541 / 0.0134; (South Africa) 0.1070 / 0.0208; (Switzerland) 0.0492 / 0.0121; (Thailand) 0.0833 / 0.0204 - X (Korea) Mode / SE: 0.1024 / 0.0184; (South Africa) 0.0514 / 0.0119; (Switzerland) 0.0497 / 0.0113; (Thailand) 0.0742 / 0.0152 - M (Korea) Mode / SE: 0.0817 / 0.0154; (South Africa) 0.0886 / 0.0187; (Switzerland) 0.0507 / 0.0115; (Thailand) 0.1014 / 0.0209 - Bi (Korea) Mode / SE: 0.0024 / 0.0006; (South Africa) 0.0031 / 0.0008; (Switzerland) 0.0027 / 0.0007; (Thailand) 0.0023 / 0.0006 - Gi (Korea) Mode / SE: 0.0014 / 0.0003; (South Africa) 0.0016 / 0.0004; (Switzerland) 0.0012 / 0.0003; (Thailand) 0.0010 / 0.0003 - HV Mode / SE: 0.1138 / 0.0222 | 0.1772 / 0.0385 | 0.1045 / 0.0196 | 0.1002 / 0.0199 - FV Mode / SE: 0.1953 / 0.0412 | 0.1721 / 0.0395 | 0.1582 / 0.0322 | 0.2030 / 0.0396 - BA Mode / SE: 0.6489 / 0.0387 | 2.2395 / 0.1312 | 0.9272 / 0.0547 | 1.4781 / 0.0868 -  Mode / SE: 0.0994 / 0.0326 | 0.2570 / 0.0617 | 0.1032 / 0.0264 | 0.0695 / 0.0217 - W Mode / SE: 0.5478 / 0.0373 | 0.0942 / 0.0141 | 0.0284 / 0.0048 | 0.0587 / 0.0092 - Lu Mode / SE: 0.0054 / 0.0012 | 0.0103 / 0.0028 | 0.0068 / 0.0016 | 0.0066 / 0.0016 - L Mode / SE: 0.0173 / 0.0038 | 0.0208 / 0.0052 | 0.0177 / 0.0040 | 0.0300 / 0.0062 - Note: All priors are normally distributed, while all posteriors are asymptotically normally distributed. *IMF Working Papers — Appendix A. Parameter Values (tables reproduced as in the source).* ### Appendix B. Transmission Mechanisms ### Appendix B. Transmission Mechanisms ### Monetary Easing: Interbank Rate Cut (Figure 6) - Note: Depicts impulse responses for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ to a monetary policy shock that reduces the interbank rate by one percentage point. All variables are annualized, where applicable. - Shock size: one percentage point reduction in the interbank rate. - Variables shown (impulse responses): - Consumption Price Inflation - Output Price Inflation - Output - Output Gap - Potential Output - Private Consumption - Residential Investment - Business Investment - Exports - Imports - Interbank Rate - Government Bond Yield - Price of Housing - Price of Equity - Financial Gap - Bank Credit - Mortgage Debt - External Mortgage Debt - Corporate Debt - External Corporate Debt - Mortgage Loan Rate - Corporate Loan Rate - Mortgage Loan Default Rate - Corporate Loan Default Rate - Bank Capital Ratio - Bank Capital Ratio Requirement - Mortgage Loan to Value Ratio Limit - Corporate Loan to Value Ratio Limit - Mortgage Capital Control Tax Rate - Corporate Capital Control Tax Rate - Nominal Exchange Rate - Real Exchange Rate - Foreign Exchange Reserve Ratio - Wage Inflation - Unemployment Rate - Fiscal Deficit Ratio - Primary Fiscal Deficit Ratio - Public Debt Ratio - Public Demand - Tax Revenue Ratio - Current Account Balance Ratio - Trade Balance Ratio - Net Foreign Asset Ratio - Export Price Inflation - Import Price Inflation ### Foreign Exchange Intervention: Reserve Sales (Figure 7) - Note: Depicts impulse responses for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ to a foreign exchange intervention shock that reduces the foreign exchange reserve ratio by one percentage point. All variables are annualized, where applicable. - Shock size: one percentage point reduction in the foreign exchange reserve ratio. - Variables shown (impulse responses): - Consumption Price Inflation - Output Price Inflation - Output - Output Gap - Potential Output - Private Consumption - Residential Investment - Business Investment - Exports - Imports - Interbank Rate - Government Bond Yield - Price of Housing - Price of Equity - Financial Gap - Bank Credit - Mortgage Debt - External Mortgage Debt - Corporate Debt - External Corporate Debt - Mortgage Loan Rate - Corporate Loan Rate - Mortgage Loan Default Rate - Corporate Loan Default Rate - Bank Capital Ratio - Bank Capital Ratio Requirement - Mortgage Loan to Value Ratio Limit - Corporate Loan to Value Ratio Limit - Mortgage Capital Control Tax Rate - Corporate Capital Control Tax Rate - Nominal Exchange Rate - Real Exchange Rate - Foreign Exchange Reserve Ratio - Wage Inflation - Unemployment Rate - Fiscal Deficit Ratio - Primary Fiscal Deficit Ratio - Public Debt Ratio - Public Demand - Tax Revenue Ratio - Current Account Balance Ratio - Trade Balance Ratio - Net Foreign Asset Ratio - Export Price Inflation - Import Price Inflation ### Fiscal Stimulus: Public Consumption Increase (Figure 8) - Note: Depicts impulse responses for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ to a public consumption demand shock that raises the primary fiscal deficit ratio by one percentage point. All variables are annualized, where applicable. - Shock size: raises the primary fiscal deficit ratio by one percentage point. - Variables shown (impulse responses): (same comprehensive variable list as above, including Public Demand, Public Debt Ratio, Primary Fiscal Deficit Ratio, etc.) ### Fiscal Stimulus: Public Investment Increase (Figure 9) - Note: Depicts impulse responses for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ to a public investment demand shock that raises the primary fiscal deficit ratio by one percentage point. All variables are annualized, where applicable. - Shock size: raises the primary fiscal deficit ratio by one percentage point. - Variables shown (impulse responses): (same comprehensive variable list as above) ### Fiscal Stimulus: Corporate Tax Rate Cut (Figure 10) - Note: Depicts impulse responses for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ to a corporate tax rate shock that raises the primary fiscal deficit ratio by one percentage point. All variables are annualized, where applicable. - Shock size: raises the primary fiscal deficit ratio by one percentage point via a corporate tax rate shock. - Variables shown (impulse responses): (same comprehensive variable list as above) ### Fiscal Stimulus: Labor Income Tax Rate Cut (Figure 11) - Note: Depicts impulse responses for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ to a labor income tax rate shock that raises the primary fiscal deficit ratio by one percentage point. All variables are annualized, where applicable. - Shock size: raises the primary fiscal deficit ratio by one percentage point via a labor income tax rate shock. - Variables shown (impulse responses): (same comprehensive variable list as above) ### Fiscal Stimulus: Consumption Tax Rate Cut (Figure 12) - Note: Depicts impulse responses for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ to a consumption tax rate shock that raises the primary fiscal deficit ratio by one percentage point. All variables are annualized, where applicable. - Shock size: raises the primary fiscal deficit ratio by one percentage point via a consumption tax rate shock. - Variables shown (impulse responses): (same comprehensive variable list as above) ### Fiscal Stimulus: Targeted Transfer Payments (Figure 13) - Note: Depicts impulse responses for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ to a transfer payment shock that raises the primary fiscal deficit ratio by one percentage point. All variables are annualized, where applicable. - Shock size: raises the primary fiscal deficit ratio by one percentage point via targeted transfer payments. - Variables shown (impulse responses): (same comprehensive variable list as above) ### Macroprudential Tightening: Countercyclical Capital Buffer Increase (Figure 14) - Note: Depicts impulse responses for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ to a bank capital requirement shock that raises the bank capital ratio requirement by one percentage point. All variables are annualized, where applicable. - Shock size: one percentage point increase in the bank capital ratio requirement. - Variables shown (impulse responses): (same comprehensive variable list as above, including Bank Capital Ratio and Bank Capital Ratio Requirement) ### Macroprudential Tightening: Mortgage Loan to Value Limit Reduction (Figure 15) - Note: Depicts impulse responses for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ to a mortgage loan to value limit shock that reduces the mortgage loan to value ratio limit by ten percentage points. All variables are annualized, where applicable. - Shock size: reduces the mortgage loan to value ratio limit by ten percentage points. - Variables shown (impulse responses): (same comprehensive variable list as above, including Mortgage Loan to Value Ratio Limit and Mortgage Debt) ### Macroprudential Tightening: Corporate Loan to Value Limit Reduction (Figure 16) - Note: Depicts impulse responses for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ to a corporate loan to value limit shock that reduces the corporate loan to value ratio limit by ten percentage points. All variables are annualized, where applicable. - Shock size: reduces the corporate loan to value ratio limit by ten percentage points. - Variables shown (impulse responses): (same comprehensive variable list as above, including Corporate Loan to Value Ratio Limit and Corporate Debt) ### Capital Flow Management: Mortgage Capital Control Tightening (Figure 17) - Note: Depicts impulse responses for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ to a mortgage capital control shock that raises the mortgage capital control tax rate by one percentage point. All variables are annualized, where applicable. - Shock size: one percentage point increase in the mortgage capital control tax rate. - Variables shown (impulse responses): (same comprehensive variable list as above, including Mortgage Capital Control Tax Rate and External Mortgage Debt) ### Capital Flow Management: Corporate Capital Control Tightening (Figure 18) - Note: Depicts impulse responses for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ to a corporate capital control shock that raises the corporate capital control tax rate by one percentage point. All variables are annualized, where applicable. - Shock size: one percentage point increase in the corporate capital control tax rate. - Variables shown (impulse responses): (same comprehensive variable list as above, including Corporate Capital Control Tax Rate and External Corporate Debt) *Appendix B. Transmission Mechanisms — Figures 6–18, IMF Working Paper: A Medium-Scale DSGE Model for the Integrated Policy Framework* ### Appendix C. Unconstrained Scenarios ### Appendix C. Unconstrained Scenarios ### Figure 19. Domestic Financial Cycle Upturn Scenario Note: Depicts simulation results for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ under our domestic financial cycle upturn scenario. All variables are annualized, where applicable. - Consumption Price Inflation: scale from -0.60 to 0.60 (increments shown: -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60) - Output Price Inflation: scale from -0.60 to 0.60 (increments shown: -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60) - Output: scale from -2.00 to 2.00 (increments shown: -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00) - Output Gap: scale from -0.50 to 0.50 (increments shown: -0.50, -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40, 0.50) - Potential Output: scale from -2.00 to 2.50 (increments shown: -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00, 2.50) - Private Consumption: scale from -15.00 to 15.00 (increments shown: -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00) - Residential Investment: scale from -20.00 to 20.00 (increments shown: -20.00, -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00, 20.00) - Business Investment: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Exports: scale from -6.00 to 6.00 (increments shown: -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00) - Imports: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Interbank Rate: scale from -0.40 to 0.40 (increments shown: -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40) - Government Bond Yield: scale from -0.40 to 0.40 (increments shown: -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40) - Price of Housing: scale from -6.00 to 6.00 (increments shown: -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00) - Price of Equity: scale from -15.00 to 15.00 (increments shown: -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00) - Financial Gap: scale from -10.00 to 10.00 (increments shown: -10.00, -8.00, -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00, 8.00, 10.00) - Bank Credit: scale from -15.00 to 15.00 (increments shown: -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00) - Mortgage Debt: scale from -5.00 to 5.00 (increments shown: -5.00, -4.00, -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00, 4.00, 5.00) - External Mortgage Debt: scale from -6.00 to 6.00 (increments shown: -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00) - Corporate Debt: scale from -15.00 to 15.00 (increments shown: -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00) - External Corporate Debt: scale from -1.00 to 1.00 (increments shown: -1.00, -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80, 1.00) - Mortgage Loan Rate: scale from -1.00 to 1.00 (increments shown: -1.00, -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80, 1.00) - Corporate Loan Rate: scale from -1.00 to 1.00 (increments shown: -1.00, -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80, 1.00) - Mortgage Loan Default Rate: scale from -0.15 to 0.15 (increments shown: -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15) - Corporate Loan Default Rate: scale from -0.25 to 0.25 (increments shown: -0.25, -0.20, -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15, 0.20, 0.25) - Bank Capital Ratio: scale from -0.08 to 0.08 (increments shown: -0.08, -0.06, -0.04, -0.02, 0.00, 0.02, 0.04, 0.06, 0.08) - Bank Capital Ratio Requirement: scale from -0.15 to 0.15 (increments shown: -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15) - Mortgage Loan to Value Ratio Limit: scale from -0.20 to 0.20 (increments shown: -0.20, -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15, 0.20) - Corporate Loan to Value Ratio Limit: scale from -1.00 to 1.00 (increments shown: -1.00, -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80, 1.00) - Mortgage Capital Control Tax Rate: scale from -0.06 to 0.06 (increments shown: -0.06, -0.04, -0.02, 0.00, 0.02, 0.04, 0.06) - Corporate Capital Control Tax Rate: scale from -0.20 to 0.20 (increments shown: -0.20, -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15, 0.20) - Nominal Exchange Rate: scale from -6.00 to 6.00 (increments shown: -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00) - Real Exchange Rate: scale from -6.00 to 6.00 (increments shown: -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00) - Foreign Exchange Reserve Ratio: scale from -0.30 to 0.30 (increments shown: -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30) - Wage Inflation: scale from -0.80 to 0.80 (increments shown: -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80) - Unemployment Rate: scale from -0.40 to 0.40 (increments shown: -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40) - Fiscal Deficit Ratio: scale from -3.00 to 3.00 (increments shown: -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00) - Primary Fiscal Deficit Ratio: scale from -0.80 to 0.80 (increments shown: -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80) - Public Debt Ratio: scale from -2.50 to 2.50 (increments shown: -2.50, -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00, 2.50) - Public Demand: scale from -0.60 to 0.60 (increments shown: -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60) - Tax Revenue Ratio: scale from -0.05 to 0.05 (increments shown: -0.05, -0.04, -0.03, -0.02, -0.01, 0.00, 0.01, 0.02, 0.03, 0.04, 0.05) - Current Account Balance Ratio: scale from -2.50 to 2.50 (increments shown: -2.50, -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00, 2.50) - Trade Balance Ratio: scale from -2.50 to 2.50 (increments shown: -2.50, -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00, 2.50) - Net Foreign Asset Ratio: scale from -10.00 to 10.00 (increments shown: -10.00, -8.00, -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00, 8.00, 10.00) - Export Price Inflation: scale from -0.60 to 0.60 (increments shown: -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60) - Import Price Inflation: scale from -0.40 to 0.40 (increments shown: -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40) ### Figure 20. Global Financial Cycle Upturn Scenario Note: Depicts simulation results for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ under our global financial cycle upturn scenario. All variables are annualized, where applicable. - Consumption Price Inflation: scale from -0.50 to 0.50 (increments shown: -0.50, -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40, 0.50) - Output Price Inflation: scale from -0.50 to 0.50 (increments shown: -0.50, -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40, 0.50) - Output: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Output Gap: scale from -0.25 to 0.25 (increments shown: -0.25, -0.20, -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15, 0.20, 0.25) - Potential Output: scale from -1.00 to 1.00 (increments shown: -1.00, -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80, 1.00) - Private Consumption: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Residential Investment: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Business Investment: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Exports: scale from -2.00 to 2.00 (increments shown: -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00) - Imports: scale from -0.60 to 0.60 (increments shown: -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60) - Interbank Rate: scale from -0.20 to 0.20 (increments shown: -0.20, -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15, 0.20) - Government Bond Yield: scale from -0.20 to 0.20 (increments shown: -0.20, -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15, 0.20) - Price of Housing: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Price of Equity: scale from -10.00 to 10.00 (increments shown: -10.00, -8.00, -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00, 8.00, 10.00) - Financial Gap: scale from -5.00 to 5.00 (increments shown: -5.00, -4.00, -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00, 4.00, 5.00) - Bank Credit: scale from -6.00 to 6.00 (increments shown: -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00) - Mortgage Debt: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - External Mortgage Debt: scale from -3.00 to 3.00 (increments shown: -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00) - Corporate Debt: scale from -8.00 to 8.00 (increments shown: -8.00, -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00, 8.00) - External Corporate Debt: scale from -8.00 to 8.00 (increments shown: -8.00, -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00, 8.00) - Mortgage Loan Rate: scale from -0.50 to 0.50 (increments shown: -0.50, -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40, 0.50) - Corporate Loan Rate: scale from -0.50 to 0.50 (increments shown: -0.50, -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40, 0.50) - Mortgage Loan Default Rate: scale from -0.06 to 0.06 (increments shown: -0.06, -0.04, -0.02, 0.00, 0.02, 0.04, 0.06) - Corporate Loan Default Rate: scale from -0.15 to 0.15 (increments shown: -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15) - Bank Capital Ratio: scale from -0.04 to 0.04 (increments shown: -0.04, -0.03, -0.02, -0.01, 0.00, 0.01, 0.02, 0.03, 0.04) - Bank Capital Ratio Requirement: scale from -0.08 to 0.08 (increments shown: -0.08, -0.06, -0.04, -0.02, 0.00, 0.02, 0.04, 0.06, 0.08) - Mortgage Loan to Value Ratio Limit: scale from -0.06 to 0.06 (increments shown: -0.06, -0.04, -0.02, 0.00, 0.02, 0.04, 0.06) - Corporate Loan to Value Ratio Limit: scale from -0.60 to 0.60 (increments shown: -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60) - Mortgage Capital Control Tax Rate: scale from -0.05 to 0.05 (increments shown: -0.05, -0.04, -0.03, -0.02, -0.01, 0.00, 0.01, 0.02, 0.03, 0.04, 0.05) - Corporate Capital Control Tax Rate: scale from -0.10 to 0.10 (increments shown: -0.10, -0.08, -0.06, -0.04, -0.02, 0.00, 0.02, 0.04, 0.06, 0.08, 0.10) - Nominal Exchange Rate: scale from -8.00 to 8.00 (increments shown: -8.00, -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00, 8.00) - Real Exchange Rate: scale from -6.00 to 6.00 (increments shown: -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00) - Foreign Exchange Reserve Ratio: scale from -0.30 to 0.30 (increments shown: -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30) - Wage Inflation: scale from -0.50 to 0.50 (increments shown: -0.50, -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40, 0.50) - Unemployment Rate: scale from -0.15 to 0.15 (increments shown: -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15) - Fiscal Deficit Ratio: scale from -0.40 to 0.40 (increments shown: -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40) - Primary Fiscal Deficit Ratio: scale from -0.80 to 0.80 (increments shown: -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80) - Public Debt Ratio: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Public Demand: scale from -0.40 to 0.40 (increments shown: -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40) - Tax Revenue Ratio: scale from -0.15 to 0.15 (increments shown: -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15) - Current Account Balance Ratio: scale from -0.80 to 0.80 (increments shown: -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80) - Trade Balance Ratio: scale from -0.80 to 0.80 (increments shown: -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80) - Net Foreign Asset Ratio: scale from -2.00 to 2.00 (increments shown: -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00) - Export Price Inflation: scale from -0.40 to 0.40 (increments shown: -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40) - Import Price Inflation: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) ### Figure 21. Domestic Financial Cycle Downturn Scenario Note: Depicts simulation results for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ under our domestic financial cycle downturn scenario. All variables are annualized, where applicable. - Consumption Price Inflation: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Output Price Inflation: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Output: scale from -4.00 to 4.00 (increments shown: -4.00, -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00, 4.00) - Output Gap: scale from -1.00 to 1.00 (increments shown: -1.00, -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80, 1.00) - Potential Output: scale from -3.00 to 3.00 (increments shown: -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00) - Private Consumption: scale from -4.00 to 4.00 (increments shown: -4.00, -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00, 4.00) - Residential Investment: scale from -20.00 to 20.00 (increments shown: -20.00, -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00, 20.00) - Business Investment: scale from -40.00 to 40.00 (increments shown: -40.00, -30.00, -20.00, -10.00, 0.00, 10.00, 20.00, 30.00, 40.00) - Exports: scale from -2.00 to 2.00 (increments shown: -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00) - Imports: scale from -10.00 to 10.00 (increments shown: -10.00, -8.00, -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00, 8.00, 10.00) - Interbank Rate: scale from -2.50 to 2.50 (increments shown: -2.50, -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00, 2.50) - Government Bond Yield: scale from -0.80 to 0.80 (increments shown: -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80) - Price of Housing: scale from -15.00 to 15.00 (increments shown: -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00) - Price of Equity: scale from -25.00 to 25.00 (increments shown: -25.00, -20.00, -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00, 20.00, 25.00) - Financial Gap: scale from -15.00 to 15.00 (increments shown: -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00) - Bank Credit: scale from -20.00 to 20.00 (increments shown: -20.00, -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00, 20.00) - Mortgage Debt: scale from -8.00 to 8.00 (increments shown: -8.00, -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00, 8.00) - External Mortgage Debt: scale from -10.00 to 10.00 (increments shown: -10.00, -8.00, -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00, 8.00, 10.00) - Corporate Debt: scale from -25.00 to 25.00 (increments shown: -25.00, -20.00, -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00, 20.00, 25.00) - External Corporate Debt: scale from -20.00 to 20.00 (increments shown: -20.00, -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00, 20.00) - Mortgage Loan Rate: scale from -2.00 to 2.00 (increments shown: -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00) - Corporate Loan Rate: scale from -2.50 to 2.50 (increments shown: -2.50, -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00, 2.50) - Mortgage Loan Default Rate: scale from -0.20 to 0.20 (increments shown: -0.20, -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15, 0.20) - Corporate Loan Default Rate: scale from -0.40 to 0.40 (increments shown: -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40) - Bank Capital Ratio: scale from -0.15 to 0.15 (increments shown: -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15) - Bank Capital Ratio Requirement: scale from -0.25 to 0.25 (increments shown: -0.25, -0.20, -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15, 0.20, 0.25) - Mortgage Loan to Value Ratio Limit: scale from -0.30 to 0.30 (increments shown: -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30) - Corporate Loan to Value Ratio Limit: scale from -0.30 to 0.30 (increments shown: -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30) - Mortgage Capital Control Tax Rate: scale from -0.15 to 0.15 (increments shown: -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15) - Corporate Capital Control Tax Rate: scale from -0.40 to 0.40 (increments shown: -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40) - Nominal Exchange Rate: scale from -15.00 to 15.00 (increments shown: -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00) - Real Exchange Rate: scale from -15.00 to 15.00 (increments shown: -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00) - Foreign Exchange Reserve Ratio: scale from -0.60 to 0.60 (increments shown: -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60) - Wage Inflation: scale from -2.00 to 2.00 (increments shown: -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00) - Unemployment Rate: scale from -0.80 to 0.80 (increments shown: -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80) - Fiscal Deficit Ratio: scale from -15.00 to 15.00 (increments shown: -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00) - Primary Fiscal Deficit Ratio: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Public Debt Ratio: scale from -4.00 to 4.00 (increments shown: -4.00, -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00, 4.00) - Public Demand: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Tax Revenue Ratio: scale from -0.10 to 0.10 (increments shown: -0.10, -0.08, -0.06, -0.04, -0.02, 0.00, 0.02, 0.04, 0.06, 0.08, 0.10) - Current Account Balance Ratio: scale from -0.10 to 0.10 (increments shown: -0.10, -0.08, -0.06, -0.04, -0.02, 0.00, 0.02, 0.04, 0.06, 0.08, 0.10) - Trade Balance Ratio: scale from -4.00 to 4.00 (increments shown: -4.00, -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00, 4.00) - Net Foreign Asset Ratio: scale from -15.00 to 15.00 (increments shown: -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00) - Export Price Inflation: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Import Price Inflation: scale from -3.00 to 3.00 (increments shown: -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00) ### Figure 22. Global Financial Cycle Downturn Scenario Note: Depicts simulation results for Korea ■, South Africa ■, Switzerland ■ and Thailand ■ under our global financial cycle downturn scenario. All variables are annualized, where applicable. - Consumption Price Inflation: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Output Price Inflation: scale from -1.00 to 1.00 (increments shown: -1.00, -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80, 1.00) - Output: scale from -2.50 to 2.50 (increments shown: -2.50, -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00, 2.50) - Output Gap: scale from -0.60 to 0.60 (increments shown: -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60) - Potential Output: scale from -2.00 to 2.00 (increments shown: -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00) - Private Consumption: scale from -2.00 to 2.00 (increments shown: -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00) - Residential Investment: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Business Investment: scale from -5.00 to 5.00 (increments shown: -5.00, -4.00, -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00, 4.00, 5.00) - Exports: scale from -5.00 to 5.00 (increments shown: -5.00, -4.00, -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00, 4.00, 5.00) - Imports: scale from -1.00 to 1.00 (increments shown: -1.00, -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80, 1.00) - Interbank Rate: scale from -0.50 to 0.50 (increments shown: -0.50, -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40, 0.50) - Government Bond Yield: scale from -0.50 to 0.50 (increments shown: -0.50, -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40, 0.50) - Price of Housing: scale from -3.00 to 3.00 (increments shown: -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00) - Price of Equity: scale from -20.00 to 20.00 (increments shown: -20.00, -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00, 20.00) - Financial Gap: scale from -8.00 to 8.00 (increments shown: -8.00, -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00, 8.00) - Bank Credit: scale from -8.00 to 8.00 (increments shown: -8.00, -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00, 8.00) - Mortgage Debt: scale from -2.50 to 2.50 (increments shown: -2.50, -2.00, -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50, 2.00, 2.50) - External Mortgage Debt: scale from -5.00 to 5.00 (increments shown: -5.00, -4.00, -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00, 4.00, 5.00) - Corporate Debt: scale from -15.00 to 15.00 (increments shown: -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00) - External Corporate Debt: scale from -10.00 to 10.00 (increments shown: -10.00, -8.00, -6.00, -4.00, -2.00, 0.00, 2.00, 4.00, 6.00, 8.00, 10.00) - Mortgage Loan Rate: scale from -1.00 to 1.00 (increments shown: -1.00, -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80, 1.00) - Corporate Loan Rate: scale from -0.80 to 0.80 (increments shown: -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80) - Mortgage Loan Default Rate: scale from -0.10 to 0.10 (increments shown: -0.10, -0.08, -0.06, -0.04, -0.02, 0.00, 0.02, 0.04, 0.06, 0.08, 0.10) - Corporate Loan Default Rate: scale from -0.20 to 0.20 (increments shown: -0.20, -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15, 0.20) - Bank Capital Ratio: scale from -0.08 to 0.08 (increments shown: -0.08, -0.06, -0.04, -0.02, 0.00, 0.02, 0.04, 0.06, 0.08) - Bank Capital Ratio Requirement: scale from -0.15 to 0.15 (increments shown: -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15) - Mortgage Loan to Value Ratio Limit: scale from -1.00 to 1.00 (increments shown: -1.00, -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80, 1.00) - Corporate Loan to Value Ratio Limit: scale from -0.08 to 0.08 (increments shown: -0.08, -0.06, -0.04, -0.02, 0.00, 0.02, 0.04, 0.06, 0.08) - Mortgage Capital Control Tax Rate: scale from -0.15 to 0.15 (increments shown: -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15) - Corporate Capital Control Tax Rate: scale from -1.00 to 1.00 (increments shown: -1.00, -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80, 1.00) - Nominal Exchange Rate: scale from -15.00 to 15.00 (increments shown: -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00) - Real Exchange Rate: scale from -15.00 to 15.00 (increments shown: -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00) - Foreign Exchange Reserve Ratio: scale from -0.60 to 0.60 (increments shown: -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60) - Wage Inflation: scale from -1.00 to 1.00 (increments shown: -1.00, -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80, 1.00) - Unemployment Rate: scale from -0.40 to 0.40 (increments shown: -0.40, -0.30, -0.20, -0.10, 0.00, 0.10, 0.20, 0.30, 0.40) - Fiscal Deficit Ratio: scale from -15.00 to 15.00 (increments shown: -15.00, -10.00, -5.00, 0.00, 5.00, 10.00, 15.00) - Primary Fiscal Deficit Ratio: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Public Debt Ratio: scale from -4.00 to 4.00 (increments shown: -4.00, -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00, 4.00) - Public Demand: scale from -0.60 to 0.60 (increments shown: -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60) - Tax Revenue Ratio: scale from -0.25 to 0.25 (increments shown: -0.25, -0.20, -0.15, -0.10, -0.05, 0.00, 0.05, 0.10, 0.15, 0.20, 0.25) - Current Account Balance Ratio: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Trade Balance Ratio: scale from -1.50 to 1.50 (increments shown: -1.50, -1.00, -0.50, 0.00, 0.50, 1.00, 1.50) - Net Foreign Asset Ratio: scale from -3.00 to 3.00 (increments shown: -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00) - Export Price Inflation: scale from -1.00 to 1.00 (increments shown: -1.00, -0.80, -0.60, -0.40, -0.20, 0.00, 0.20, 0.40, 0.60, 0.80, 1.00) - Import Price Inflation: scale from -3.00 to 3.00 (increments shown: -3.00, -2.00, -1.00, 0.00, 1.00, 2.00, 3.00) *IMF WORKING PAPERS A Medium-Scale DSGE Model for the Integrated Policy Framework — Appendix C. Unconstrained Scenarios* ### Appendix D. Constrained Scenarios ### Appendix D. Constrained Scenarios ### Overview - Note: Depicts simulation results with unconstrained policies ■ versus constrained monetary policy ■, foreign exchange intervention ■, fiscal policy ■, macroprudential policy ■, and capital flow management ■. All variables are annualized, where applicable. ### Figures and key plotted variables (selected axis ranges preserved exactly as in source) - Figure 23. Domestic Financial Cycle Upturn Scenario for Korea - Consumption Price Inflation: -1.50 to 1.50 Percentage Points - Output Price Inflation: -1.50 to 1.50 Percentage Points - Output: -4.00 to 4.00 Percent - Output Gap: -0.80 to 0.80 Percentage Points - Price of Housing: -15.00 to 15.00 Percent - Financial Gap: -10.00 to 10.00 Percent - Bank Credit: -15.00 to 15.00 Percent - Corporate Debt: -20.00 to 20.00 Percent - Nominal Exchange Rate: -6.00 to 6.00 Percent - Current Account Balance Ratio: -2.00 to 2.00 Percentage Points - Figure 24. Domestic Financial Cycle Upturn Scenario for South Africa - Consumption Price Inflation: -1.50 to 1.50 Percentage Points - Output Price Inflation: -1.50 to 1.50 Percentage Points - Output: -2.50 to 2.50 Percent - Output Gap: -0.50 to 0.50 Percentage Points - Price of Housing: -8.00 to 8.00 Percent - Financial Gap: -8.00 to 8.00 Percent - Bank Credit: -15.00 to 15.00 Percent - Corporate Debt: -15.00 to 15.00 Percent - Nominal Exchange Rate: -5.00 to 5.00 Percent - Current Account Balance Ratio: -1.50 to 1.50 Percentage Points - Figure 25. Domestic Financial Cycle Upturn Scenario for Switzerland - Consumption Price Inflation: -1.50 to 1.50 Percentage Points - Output Price Inflation: -0.80 to 0.80 Percentage Points - Output: -2.00 to 2.00 Percent - Output Gap: -0.50 to 0.50 Percentage Points - Price of Housing: -6.00 to 6.00 Percent - Financial Gap: -10.00 to 10.00 Percent - Bank Credit: -15.00 to 15.00 Percent - Corporate Debt: -15.00 to 15.00 Percent - Nominal Exchange Rate: -6.00 to 6.00 Percent - Current Account Balance Ratio: -2.50 to 2.50 Percentage Points - Figure 26. Domestic Financial Cycle Upturn Scenario for Thailand - Consumption Price Inflation: -0.60 to 0.60 Percentage Points - Output Price Inflation: -0.30 to 0.30 Percentage Points - Output: -1.50 to 1.50 Percent - Output Gap: -0.50 to 0.50 Percentage Points - Price of Housing: -6.00 to 6.00 Percent - Financial Gap: -10.00 to 10.00 Percent - Bank Credit: -10.00 to 10.00 Percent - Corporate Debt: -15.00 to 15.00 Percent - Nominal Exchange Rate: -6.00 to 6.00 Percent - Current Account Balance Ratio: -2.00 to 2.00 Percentage Points - Figure 27. Global Financial Cycle Upturn Scenario for Korea - Consumption Price Inflation: -0.40 to 0.40 Percentage Points - Output Price Inflation: -0.30 to 0.30 Percentage Points - Output: -1.50 to 1.50 Percent - Output Gap: -0.40 to 0.40 Percentage Points - Price of Housing: -2.00 to 2.00 Percent - Financial Gap: -4.00 to 4.00 Percent - Bank Credit: -6.00 to 6.00 Percent - Corporate Debt: -8.00 to 8.00 Percent - Nominal Exchange Rate: -8.00 to 8.00 Percent - Current Account Balance Ratio: -0.50 to 0.50 Percentage Points - Figure 28. Global Financial Cycle Upturn Scenario for South Africa - Consumption Price Inflation: -0.50 to 0.50 Percentage Points - Output Price Inflation: -0.50 to 0.50 Percentage Points - Output: -1.50 to 1.50 Percent - Output Gap: -0.30 to 0.30 Percentage Points - Price of Housing: -2.50 to 2.50 Percent - Financial Gap: -4.00 to 4.00 Percent - Bank Credit: -6.00 to 6.00 Percent - Corporate Debt: -8.00 to 8.00 Percent - Nominal Exchange Rate: -8.00 to 8.00 Percent - Current Account Balance Ratio: -0.50 to 0.50 Percentage Points - Figure 29. Global Financial Cycle Upturn Scenario for Switzerland - Consumption Price Inflation: -0.60 to 0.60 Percentage Points - Output Price Inflation: -0.30 to 0.30 Percentage Points - Output: -1.50 to 1.50 Percent - Output Gap: -0.25 to 0.25 Percentage Points - Price of Housing: -2.00 to 2.00 Percent - Financial Gap: -6.00 to 6.00 Percent - Bank Credit: -6.00 to 6.00 Percent - Corporate Debt: -8.00 to 8.00 Percent - Nominal Exchange Rate: -8.00 to 8.00 Percent - Current Account Balance Ratio: -0.50 to 0.50 Percentage Points - Figure 30. Global Financial Cycle Upturn Scenario for Thailand - Consumption Price Inflation: -0.50 to 0.50 Percentage Points - Output Price Inflation: -0.50 to 0.50 Percentage Points - Output: -1.50 to 1.50 Percent - Output Gap: -0.25 to 0.25 Percentage Points - Price of Housing: -1.50 to 1.50 Percent - Financial Gap: -6.00 to 6.00 Percent - Bank Credit: -6.00 to 6.00 Percent - Corporate Debt: -8.00 to 8.00 Percent - Nominal Exchange Rate: -8.00 to 8.00 Percent - Current Account Balance Ratio: -0.50 to 0.50 Percentage Points - Figure 31. Domestic Financial Cycle Downturn Scenario for Korea - Consumption Price Inflation: -2.50 to 2.50 Percentage Points - Output Price Inflation: -2.00 to 2.00 Percentage Points - Output: -5.00 to 5.00 Percent - Output Gap: -1.50 to 1.50 Percentage Points - Price of Housing: -15.00 to 15.00 Percent - Financial Gap: -15.00 to 15.00 Percent - Bank Credit: -25.00 to 25.00 Percent - Corporate Debt: -30.00 to 30.00 Percent - Nominal Exchange Rate: -15.00 to 15.00 Percent - Current Account Balance Ratio: -3.00 to 3.00 Percentage Points - Figure 32. Domestic Financial Cycle Downturn Scenario for South Africa - Consumption Price Inflation: -2.50 to 2.50 Percentage Points - Output Price Inflation: -2.00 to 2.00 Percentage Points - Output: -4.00 to 4.00 Percent - Output Gap: -0.80 to 0.80 Percentage Points - Price of Housing: -15.00 to 15.00 Percent - Financial Gap: -20.00 to 20.00 Percent - Bank Credit: -20.00 to 20.00 Percent - Corporate Debt: -25.00 to 25.00 Percent - Nominal Exchange Rate: -15.00 to 15.00 Percent - Current Account Balance Ratio: -2.00 to 2.00 Percentage Points - Figure 33. Domestic Financial Cycle Downturn Scenario for Switzerland - Consumption Price Inflation: -2.00 to 2.00 Percentage Points - Output Price Inflation: -1.50 to 1.50 Percentage Points - Output: -3.00 to 3.00 Percent - Output Gap: -1.00 to 1.00 Percentage Points - Price of Housing: -15.00 to 15.00 Percent - Financial Gap: -20.00 to 20.00 Percent - Bank Credit: -20.00 to 20.00 Percent - Corporate Debt: -25.00 to 25.00 Percent - Nominal Exchange Rate: -15.00 to 15.00 Percent - Current Account Balance Ratio: -5.00 to 5.00 Percentage Points - Figure 34. Domestic Financial Cycle Downturn Scenario for Thailand - Consumption Price Inflation: -1.50 to 1.50 Percentage Points - Output Price Inflation: -0.60 to 0.60 Percentage Points - Output: -2.00 to 2.00 Percent - Output Gap: -1.00 to 1.00 Percentage Points - Price of Housing: -15.00 to 15.00 Percent - Financial Gap: -15.00 to 15.00 Percent - Bank Credit: -15.00 to 15.00 Percent - Corporate Debt: -20.00 to 20.00 Percent - Nominal Exchange Rate: -15.00 to 15.00 Percent - Current Account Balance Ratio: -3.00 to 3.00 Percentage Points - Figure 35. Global Financial Cycle Downturn Scenario for Korea - Consumption Price Inflation: -0.80 to 0.80 Percentage Points - Output Price Inflation: -0.50 to 0.50 Percentage Points - Output: -2.50 to 2.50 Percent - Output Gap: -0.60 to 0.60 Percentage Points - Price of Housing: -3.00 to 3.00 Percent - Financial Gap: -10.00 to 10.00 Percent - Bank Credit: -10.00 to 10.00 Percent - Corporate Debt: -15.00 to 15.00 Percent - Nominal Exchange Rate: -15.00 to 15.00 Percent - Current Account Balance Ratio: -1.50 to 1.50 Percentage Points - Figure 36. Global Financial Cycle Downturn Scenario for South Africa - Consumption Price Inflation: -1.00 to 1.00 Percentage Points - Output Price Inflation: -1.00 to 1.00 Percentage Points - Output: -2.50 to 2.50 Percent - Output Gap: -0.60 to 0.60 Percentage Points - Price of Housing: -4.00 to 4.00 Percent - Financial Gap: -10.00 to 10.00 Percent - Bank Credit: -10.00 to 10.00 Percent - Corporate Debt: -15.00 to 15.00 Percent - Nominal Exchange Rate: -15.00 to 15.00 Percent - Current Account Balance Ratio: -1.00 to 1.00 Percentage Points - Figure 37. Global Financial Cycle Downturn Scenario for Switzerland - Consumption Price Inflation: -1.50 to 1.50 Percentage Points - Output Price Inflation: -0.50 to 0.50 Percentage Points - Output: -2.50 to 2.50 Percent - Output Gap: -0.60 to 0.60 Percentage Points - Price of Housing: -2.50 to 2.50 Percent - Financial Gap: -10.00 to 10.00 Percent - Bank Credit: -10.00 to 10.00 Percent - Corporate Debt: -10.00 to 10.00 Percent - Nominal Exchange Rate: -15.00 to 15.00 Percent - Current Account Balance Ratio: -1.50 to 1.50 Percentage Points - Figure 38. Global Financial Cycle Downturn Scenario for Thailand - Consumption Price Inflation: -1.50 to 1.50 Percentage Points - Output Price Inflation: -1.00 to 1.00 Percentage Points - Output: -2.50 to 2.50 Percent - Output Gap: -0.50 to 0.50 Percentage Points - Price of Housing: -20.00 to 20.00 Percent - Financial Gap: -10.00 to 10.00 Percent - Bank Credit: -10.00 to 10.00 Percent - Corporate Debt: -20.00 to 20.00 Percent - Nominal Exchange Rate: -15.00 to 15.00 Percent - Current Account Balance Ratio: -1.50 to 1.50 Percentage Points *Appendix D: Constrained Scenarios — figures and axis ranges as presented in source.* ### REFERENCES ### REFERENCES ### Theoretical foundations and policy evaluation - Lucas, R. (1976), “Econometric Policy Evaluation: A Critique”, Carnegie-Rochester Conference Series on Public Policy, Vol. 1, pp. 19-46. - Taylor, J. (1993), “Discretion versus Policy Rules in Practice”, Carnegie-Rochester Conference Series on Public Policy, Vol. 39, pp. 195-214. - Calvo, G. (1983), “Staggered Prices in a Utility-Maximizing Framework”, Journal of Monetary Economics, Vol. 12, pp. 383-398. - Christiano, L., M. Eichenbaum and C. Evans (2005), “Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy”, Journal of Political Economy, Vol. 113, pp. 1-45. - Woodford, M. (2001), “Fiscal Requirements for Price Stability”, Journal of Money, Credit and Banking, Vol. 33, pp. 669-728. - Theil, H. (1966), Applied Economic Forecasting, North Holland Press. ### DSGE models, monetary policy, and pass-through - Smets, F. and R. Wouters (2003), “An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area”, Journal of the European Economic Association, Vol. 1, pp. 1123-1175. - Monacelli, T. (2005), “Monetary Policy in a Low Pass-Through Environment”, Journal of Money, Credit and Banking, Vol. 37, pp. 1047-1066. - Erceg, C., D. Henderson and A. Levin (2000), “Optimal Monetary Policy with Staggered Wage and Price Contracts”, Journal of Monetary Economics, Vol. 46, pp. 281-313. - Galí, J. (2011), “The Return of the Wage Phillips Curve”, Journal of the European Economic Association, Vol. 9, pp. 436-461. - Kiyotaki, N. and J. Moore (1997), “Credit Cycles”, Journal of Political Economy, Vol. 105, pp. 211-248. - Hülsewig, O., E. Mayer and T. Wollmershäuser (2009), “Bank Behavior, Incomplete Interest Rate Pass-Through, and the Cost Channel of Monetary Policy Transmission”, Economic Modelling, Vol. 26, pp. 1310-1327. ### Credit, banking, and macrofinancial risk - Gerali, A., S. Neri, L. Sessa and F. Signoretti (2010), “Credit and Banking in a DSGE Model of the Euro Area”, Journal of Money, Credit and Banking, Vol. 42, pp. 107-141. - Adrian, T. and F. Vitek (2020), “Managing Macrofinancial Risk”, IMF Working Paper, No. 151. - Adrian, T., N. Boyarchenko and D. Giannone (2019), “Vulnerable Growth”, American Economic Review, Vol. 109, pp. 1263-1289. - Vitek, F. (2008), Monetary Policy Analysis in a Small Open Economy: Development and Evaluation of Quantitative Tools, VDM Verlag. ### Integrated Policy Framework and IMF work - Basu, S., E. Boz, G. Gopinath, F. Roch and F. Unsal (2020), “A Conceptual Model for the Integrated Policy Framework”, IMF Working Paper, No. 121. - Adrian, T., C. Erceg, M. Kolasa, J. Lindé and P. Zabczyk (2021), “A Quantitative Microfounded Model for the Integrated Policy Framework”, IMF Working Paper, No. 292. - International Monetary Fund (2020), “Toward an Integrated Policy Framework”, IMF Policy Paper, No. 46. - Lama, R. and J. Medina (2020), “Shocks Matter: Managing Capital Flows with Multiple Instruments in Emerging Economies”, IMF Working Paper, No. 97. ### International finance, capital flows, and exchange rates - Gabaix, X. and M. Maggiori (2015), “International Liquidity and Exchange Rate Dynamics”, Quarterly Journal of Economics, Vol. 130, pp. 1369-1420. - Adler, G., N. Lisack and R. Mano (2019), “Unveiling the Effects of Foreign Exchange Intervention: A Panel Approach”, Emerging Markets Review, Vol. 40, pp. 1-29. - Du, W. and J. Schreger (2021), “Sovereign Risk, Currency Risk, and Corporate Balance Sheets”, Unpublished Manuscript. - Magud, N., C. Reinhart and K. Rogoff (2018), “Capital Controls: Myth and Reality”, Annals of Economics and Finance, Vol. 19, pp. 1-47. - Vegh, C. and G. Vuletin (2013), “Overcoming the Fear of Free Falling: Monetary Policy Graduation in Emerging Markets”, The Role of Central Banks in Financial Stability: How Has It Changed?, World Scientific Publishing Company. ### Methodological and empirical contributions - Taylor, J. (1993), “Discretion versus Policy Rules in Practice”, Carnegie-Rochester Conference Series on Public Policy, Vol. 39, pp. 195-214. - Theil, H. (1966), Applied Economic Forecasting, North Holland Press. - Calvo, G. (1983), “Staggered Prices in a Utility-Maximizing Framework”, Journal of Monetary Economics, Vol. 12, pp. 383-398. *A Medium-Scale DSGE Model for the Integrated Policy Framework — REFERENCES* --- _Source: https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022015-print-pdf.pdf_