## December 2023

## Source details

**Canonical URL:** [December 2023](https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/newsletters/dec2023.pdf)

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- [Markdown version](/-/media/files/topics/lics/macro-research-for-development/newsletters/dec2023.pdf.md)
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### Climate Change and Macro-Financial Policies Workshops
- The workshops were delivered in Côte d’Ivoire and in Nigeria to 98 participants from 24 countries.
- Côte d’Ivoire: 50 participants (including 16 women) from 18 countries, including 10 fragile states.
- Nigeria: 48 participants (18 women) from 6 countries, including one fragile state.
- Covered topics: climate risks and vulnerabilities, mitigation and adaptation policies, financial sector implications, fiscal risks.
- Tools presented: Debt, Investment, Growth, and Natural Disasters (DIGNAD); Public Debt Dynamics Tool with Natural Disasters (DDT-ND); Green Public Financial Management; Climate-Public Investment Management Assessment (C-PIMA).
- Participant takeaways:
  - Enhanced ability to integrate climate considerations into policy analysis.
  - First structured exposure for many participants to macroeconomic and financial dimensions of climate issues.
  - Strong demand for deeper training on presented tools, particularly relevant for ongoing Resilience and Sustainability Trust (RST) negotiations.
- Cumulative outreach: Including sessions in Kenya (March 2023) and South Africa (June 2023), the workshops have collectively drawn 156 officials from across Sub-Saharan Africa.
- Azar Sultanov (Research Department, RES) delivered sessions on the DIGNAD model and the toolkit.

### Fiscal Imprudence and Inflation Expectations (Box 2.2, WEO Oct 2023)
- Authors: Omer Faruk Akbal, Mariarosaria Comunale, Marina Conesa Martinez, Chris Papageorgiou, Filiz D. Unsal.
- Key evidence: higher public debt is associated with expectations of higher inflation, conditional on a specific monetary policy framework.
- Framework: utilizes the IAPOC index authored by Unsal, Papageorgiou, and Garbers (2022).
- Amplifying factors:
  - Stronger impact when focusing on the stock of public debt in foreign currency.
  - Intensifies when fiscal deficits persist.
- Policy implication: adopting a strong monetary policy framework could ease challenges of managing inflation expectations amid higher public debt in emerging market and developing economies.

### Course on DIGNAD Model (IET program)
- Course title: “Debt, Investment, Growth, and Natural Disasters (DIGNAD): User’s Guide to the Model and Toolkit”.
- Instructors: Azar Sultanov (RES) and Ha Nguyen (ICD).
- DIGNAD purpose: analyze impact of climate risk from natural disasters and evaluate investments in adaptation infrastructure for developing low-income countries and emerging markets.
- DIGNAD toolkit: Excel-based interface designed for economists with little to no knowledge of Matlab and Dynare to facilitate macro-fiscal analyses of natural disasters and resilience investments.
- Course format: hybrid half-day on November 2; included model overview, past applications, and hands-on toolkit session.
- Participant feedback: found the course highly beneficial; praised flexible presentation, practical demonstrations, and responsiveness to questions.

### Regional Workshop on Gender and Inclusion (Jordan, Nov 7–9)
- Organized by Strategy, Policy and Review (SPR) Department in collaboration with the Middle East Regional Technical Assistance Center.
- Led by: Alejandro Badel, Jiajia Gu, Lisa Kolovich.
- Audience: ministries of finance and central banks of middle- and low-income countries in the region; representatives from UNFPA and the Jordanian National Commission for Women participated.
- Content:
  - Tools to quantify macroeconomic costs of gender gaps and barriers.
  - Introduction to the model-based inequality toolkit: Multisector Incomplete Markets Macro Inequality (MIMMI) App.
  - Identification of macrocritical gender gaps and design of tailored policy responses.
- Early feedback: hands-on learning, active engagement, and stimulating interactions were keys to success.

### The Global Distribution of Gains from Globalization
- Authors: Valentin Lang and Marina Tavares; published in The Journal of Economic Inequality.
- Data: comprehensive global panel at country-decile-group level covering the past half century.
- Empirical findings:
  - Income gains from globalization are substantial for countries at early stages of globalization.
  - 'Marginal returns to globalization' diminish as globalization advances and become insignificant for the most globalized countries.
  - Within countries, gains from globalization are largest for the wealthiest ten percent of national income distributions, increasing national income inequalities.
- Overall conclusion: over the past half century, globalization has driven income convergence across countries and income divergence within countries.
- Methodology: leverages geographical diffusion of liberalization policies; a simple quantitative model aligns with empirical findings.

### Market Reforms and Public Debt Dynamics in EMDEs (SDN, Sep 2023)
- Scope: empirical analysis covering 62 EMDEs from 1973 to 2014, including 18 LICs.
- Key finding: market-oriented structural reforms are linked to substantial and enduring reductions in the debt-to-GDP ratio.
- Mechanisms:
  - Increased fiscal revenues.
  - Decreased borrowing costs.
- Heterogeneity: effects are stronger in countries with greater tax efficiency, lower informality, and higher initial debt.
- Model-based insight: fiscal gains from reforms can be optimized when revenue windfalls are saved or directed toward higher public investment.
- Complementary outputs: release accompanied by a blog and a private roundtable hosted by the Center for Global Development.

### Social Unrests and Fuel Prices
- Authors: Alassane Drabo, Kodjovi Eklou, Patrick Iman, Kangni Kpodar.
- Sample: 101 developing countries from 2001 to 2020; estimation via IV fixed-effect estimator.
- Main result: positive association between changes in fuel prices and occurrence of social unrests, particularly anti-government demonstrations.
- Amplifying conditions:
  - During economic downturns and periods of high exchange rate instability.
  - When government spending is low, especially in health and education.
  - In countries with high income inequality, low institutional quality, and high levels of corruption.
- Robustness: results hold across a battery of tests.
- Theoretical implication: findings support grievance and deprivation theory; no evidence found for resource theory or political opportunities theory.

### Financial Stress and Economic Activity: New Worldwide Index
- Authors: Hites Ahir, Giovanni Dell’Ariccia, Davide Furceri, Chris Papageorgiou, Hanbo Qi.
- Indicator: continuous Financial Stress Index (FSI) covering 110 countries each quarter from 1967 to 2018.
- Advantages: larger country and time coverage and higher frequency than similar measures focused on advanced economies; complements binary crisis chronologies by assessing severity.
- Empirical findings:
  - Significant and persistent relationship between financial stress and output, aligning with existing literature.
  - Effect is larger in emerging markets and low-income countries.
  - Impact intensifies with higher levels of financial stress.
- Applications: used to assess macroeconomic impact via country- and firm-level data.

### Monetary Policy Design with Recurrent Climate Shocks
- Authors: Engin Kara and Vimal Takoor.
- Approach: New Keynesian Dynamic Stochastic General Equilibrium model where climate-induced disasters are modeled as left-tail productivity shocks with a quantified likelihood, creating skewed outcome distributions.
- Key challenge for central banks: trade-off between higher inflation risks and reduced output.
- Policy recommendation: modify the Taylor rule to give equal consideration to responses to both inflation and output growth, implying a gradual approach to addressing climate-exacerbated economic fluctuations.
- Dissemination: methodology and results shared at an internal IMF Climate and Development Seminar on September 18.

### When Will Global Gender Gaps Close?
- Authors: Alejandro Badel and Rishi Goyal.
- Focus: dynamics of cross-country distribution of gender gaps in labor force participation.
- Projection: if observed dynamics of the last three decades persist, the global distribution of national gender gaps will increasingly concentrate around lower values; however, in the long run, a majority of countries are projected to still face elevated gender gaps of 20 percent or more.
- Cross-cutting observation: developing and low-income countries are not solely responsible; shocks and setbacks affect emerging markets and advanced economies as well.
- Policy implication: need for bold and strategic global policy actions to close gender gaps.
- Status: invited to publish a concise nontechnical version on VOXEU; under review for an academic journal.

### A Monetary Policy Framework for Low Income Countries
- Authors: Carlos van Hombeeck, Juan Passadore, Filiz Unsal.
- Model: Open Economy with Heterogenous Agents incorporating LIC features:
  - impoverished households with limited market access (hand-to-mouth).
  - a subsistence level of consumption for tradable goods.
- Shock analysis: external price shock triggers a consumption-led recession, increased inflation, and decline in real wages.
- Distributional effects:
  - Inequality amplifies as poor households lack insurance; wealthier households better insulated.
  - Households at the bottom and top both bear impacts: lower wages and consumption for the former; negative revaluation of assets for the latter.
- Monetary policy effectiveness: found to be less potent in addressing these shocks due to offsetting forces (decrease in labor demand offset by lower real wages), yielding minimal net effects on workers’ earnings across the income distribution.
- Calibration: background work emphasizes LIC reliance on food imports to set subsistence parameters.
- Dissemination: advancements presented on October 11 during an Analytical Corner session at the 2023 IMF Annual Meetings.

### Global Price Shocks and Welfare in a Spatial Model of LICs
- Authors: Christopher Adams and Lisa Martin.
- Focus: impact of simultaneous shocks to food, fuel, and fertilizer prices observed in 2021–2022 on a small open agricultural economy.
- Methodology: spatial dynamic general equilibrium model calibrated to Tanzanian data; accounts for domestic production, internal trade, and labor movements.
- Research stages:
  1. Describe heterogeneous pass-through from external price shocks to domestic food and general prices across locations.
  2. Examine alternative fiscal mitigation measures (e.g., price subsidies, net household transfers), potentially partially financed by increased external grants.
  3. Extend model to transitory shocks with private agents facing adjustment costs and government access to domestic debt financing.
- Policy relevance: allows comparison of fiscal and fiscal-financing strategies to mitigate adverse effects of global price shocks.

### Countries That Close Gender Gaps See Substantial Growth Returns
- Authors of blog: Alejandro Badel, Antoinette Sayeh, Rishi Goyal (IMF blog post, Sep 27).
- Message: empowering women economically is a powerful engine of inclusive growth; countries must step up efforts to realize benefits.
- Evidence base: draws heavily from “When Will Global Gender Gaps Close?” and “IMF Strategy Toward Mainstreaming Gender”, with contributions from the Macro-Research for Low Income Countries program.

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_Source: https://www.imf.org/-/media/files/topics/lics/macro-research-for-development/newsletters/dec2023.pdf_