## December 2020

## Source details

**Canonical URL:** [December 2020](https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/newsletters/dec2020.pdf)

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- [Markdown version](/-/media/files/topics/lics/macro-research-for-development/newsletters/dec2020.pdf.md)
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### Inclusiveness in Emerging Market and Developing Economies and the Impact of COVID-19
- Research by Gabriela Cugat and Futoshi Narita documents possible implications of the pandemic for:
  - poverty reduction: the number of people in extreme poverty is likely to rise substantially this year, for the first time in more than 20 years.
  - income inequality: income inequality, on average, across these economies could rise back to levels seen in 2008, reversing gains since the global financial crisis.
  - life expectancy: less likely to be affected overall, though there are downside risks related to fragile health care systems and interruptions in treatments of other life-threatening illnesses.
- This research was published as a box in the October 2020 World Economic Outlook and featured in the IMF Blog, Quartz Magazine, and the World Economic Forum.

### Migrant Workers and Remittances during COVID-19
- Saad Quayyum and Kangni Kpodar document the disproportionate impact of the pandemic on migrants who face job loss and limited access to social safety nets.
- Findings on remittances:
  - High frequency data suggest remittance flows have been surprisingly resilient in many countries across different continents.
  - This resilience could be driven by a greater need to send money back to families as remittance-receiving countries began to struggle with the pandemic and collapse in external demand.
  - The resilience may not be sustainable.
- Policy implication: adequate and timely policy responses from both remittance-sending and remittance-receiving countries are critical to help migrant workers.

### FPAS Technical Assistance Mission to Ghana
- IMF-FCDO team and the Bank of Ghana collaborated to build macroeconomic framework capacity for monetary policy and modernize forecasting and policy analysis.
- A virtual FPAS TA mission to Ghana (September 2020) assisted the Bank of Ghana forecasting team in extending the core Quarterly Projection Model (QPM) to decompose headline CPI into food and non-food components.
  - Rationale: food accounts for 43% of the overall CPI basket in Ghana and exhibits different dynamics than non-food.
  - Benefit: produces relevant model-based analysis to inform policy decision making, particularly given recent price developments where inflation above the upper band of the target was driven exclusively by food price increases amid pandemic-related uncertainty.

### International Fuel Price Pass-Through in Developing Countries
- Kangni Kpodar and Patrick Imam (Energy Policy) examine determinants of pass-through using a dataset spanning 109 developing countries from 2000 to 2014.
- Key findings:
  - Pass-through is higher when changes in international prices are moderate and less volatile.
  - Greater flexibility of the pricing mechanism is associated with higher pass-through.
  - Exchange rate depreciation and lower retail fuel prices in neighboring countries inhibit pass-through.
  - Countries with high inflation tend to experience lower pass-through.
  - Countries with high public debt exhibit larger pass-through.
  - No evidence that political variables or environmental policies matter for short-term fuel price dynamics.
  - Findings are consistent across fuel products (gasoline, diesel and kerosene).
- Policy implication: important considerations for fuel subsidy reforms.

### Monetary Policy Frameworks in Low-Income Countries (LICs)
- Working Paper by Alina Carare, Carlos de Resende, Andrew Levin and Chelsea Zhang analyzes monetary policy frameworks using a large panel of 79 LICs over 1990-2015 and event study analysis for 28 sub-Saharan African LICs.
- Findings:
  - Significant differences in the propagation of external shocks between LICs that target monetary aggregates or inflation versus those that maintain rigid nominal exchange rates as a nominal anchor.
  - The large surprise devaluation of the CFA Franc in January 1994 had highly significant effects on GDP growth of 10 CFA countries compared to 18 similar countries outside the monetary zone.
  - Empirical analysis provides strong support for the role of monetary policy frameworks in facilitating macroeconomic stability in LICs.
- Relevance: conclusions are particularly pertinent as LICs face multiple shocks associated with the global COVID-19 pandemic.

### Imported Food Price Shocks and Socio-Political Instability
- Working Paper by Carine Meyimdjui uses a panel of 101 low- and middle-income countries from 1980 to 2012 and applies econometric approaches addressing endogeneity.
- Focus: import prices to capture vulnerability of importer countries / net-buyer households to food price shocks.
- Key findings:
  - Import food price shocks strongly increase the likelihood of socio-political instability.
  - Effect is larger in poorer countries and those with shallow financial depth.
  - Remittances tend to dampen the adverse effect of import food price shocks on socio-political instability in almost all countries.
  - The mitigating role of fiscal policy is statistically significant only in countries with less developed financial systems.

### Macroeconomic Outcomes in Disaster-Prone Countries
- Giovanni Melina, with Alessandro Cantelmo and Chris Papageorgiou, uses a dynamic stochastic general equilibrium model solved with Taylor projection to study natural disaster shocks.
- Findings:
  - Large and persistent effects of weather shocks significantly impact the income convergence path of disaster-prone countries.
  - Relative to non-disaster-prone countries, on average these shocks cause a welfare loss equivalent to a permanent fall in consumption of 1.6 percent.
  - Welfare gains to countries that self-finance investments in resilient public infrastructure are found to be negligible.
  - International aid must be sizable to achieve significant welfare gains.
  - It is more cost-effective for donors to contribute to financing resilience before disasters occur rather than disbursing aid after their realization.

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_Source: https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/newsletters/dec2020.pdf_