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### Macroeconomic Effects of the Oil Price Decline
- Oil production trends
  - U.S. crude production almost doubled between 2010 and 2014, with the bulk of the increase driven by shale oil.
  - Production should remain steady in 2015 due to the substantial investments of prior years.
  - Given the depletion profile of existing fields, production is likely to decline in 2016 as the recent sudden stop in new investment begins to feed through.
  - In North Dakota the sector’s share in state GDP is below 5 percent. Employment share of the sector in total employment is 0.6 percent.
- Macroeconomic impact — overview
  - The oil and gas extraction industry accounts for about 1½–2 percent of GDP.
  - During 2011–14, oil and gas investment contributed about 2½ percentage points to the level of U.S. real investment (equivalent to 0.4 percentage points of real GDP).
  - Lower oil prices are net supportive of U.S. growth in the near term because of higher household purchasing power, but much of the positive consumption impulse will be partly offset by weaker oil-related investment.
- Investment/channel effects
  - Investment in shale and tight oil drilling and exploration could be reduced by around 40 percent in 2015.
  - The direct GDP impact from reduced oil investment is likely to be around 0.3 percentage points in 2015 (and likely frontloaded in the first part of the year).
  - Effects on other industry segments—such as support activities and oilfield services—could make the total effect modestly higher.
  - Crude prices falling below breakeven thresholds have rendered extraction unprofitable for many U.S. fields, amplifying the investment contraction.
- Consumption/channel effects
  - Lower gasoline prices alone will add 0.9 percent of GDP to household disposable income in 2015.
  - There is a further savings of about 0.1 percent of GDP in utility bills in 2015.
  - Personal saving rate rose to 5.6 percent in April—about one percentage point above its level of 6 months ago.
  - Baseline forecast: additional consumption from lower oil prices is forecast to contribute 0.6 percentage points to growth in 2015.
- Timing and outlook
  - Net effects in 2015: positive consumption impulse and frontloaded negative investment impact, with the investment contraction concentrated in the first part of the year.
  - Medium-term production outlook: steady in 2015, likely decline in 2016 as lower investment feeds through to output.
  - Overall: decline in oil prices supports growth in the remainder of the year but introduces sector-specific weakness and potential downside from falling production beyond 2015.
- Key statistics (preserved exactly)
  - Oil and gas extraction industry share: about 1½–2 percent of GDP.
  - Oil and gas investment contribution (2011–14): about 2½ percentage points to the level of U.S. real investment (equivalent to 0.4 percentage points of real GDP).
  - Estimated reduction in shale and tight oil drilling and exploration investment in 2015: around 40 percent.
  - Direct GDP impact from reduced oil investment in 2015: around 0.3 percentage points.
  - Gasoline price effect on household disposable income in 2015: 0.9 percent of GDP.
  - Utility bill savings in 2015: about 0.1 percent of GDP.
  - Personal saving rate in April: 5.6 percent (about one percentage point above its level of 6 months ago).
  - Forecast additional consumption contribution to 2015 growth from lower oil prices: 0.6 percentage points.

### The Impact of U.S. Dollar Appreciation — The Importance of Context
- Overview
  - Impact depends highly on the underlying circumstances that generate the appreciation.
  - Analysis uses a multi-country GIMF model, calibrated for the U.S., illustrating three scenarios producing a 5 percent appreciation and their general equilibrium effects on GDP, core inflation, and the current account.
- Scenario: Permanently higher U.S. shale oil production (5 percent appreciation)
  - Boost to domestic demand.
  - Non-oil imports increase, exports decline as a result of the appreciation.
  - Medium term: deterioration in the U.S. current account balance and rebalancing of growth toward domestic demand.
- Scenario: Structural slowdown in Japan and Europe (5 percent appreciation)
  - Initial impact: knocks around ½ percentage point off of growth.
  - Initial impact: raises the current account deficit by around ¾ percent of GDP.
  - Over a longer horizon: lower global oil prices and greater capital inflows into the U.S. would actually boost growth.
- Scenario: Temporary but persistent portfolio preference shift (5 percent appreciation)
  - Loosening of domestic financial conditions as equity prices rise and bond yields fall.
  - Looser financial conditions support domestic demand, drawing in more imports.
  - Initial fall in the current account of close to 1 percent of GDP.
  - Over time: the dollar appreciation unwinds but domestic demand effects persist, causing the overall growth effect to eventually turn positive.
- Quantitative and threshold considerations
  - Illustrative appreciation size: 5 percent.
  - Initial growth hit in the structural slowdown scenario: around ½ percentage point.
  - Initial current account worsening in the structural slowdown scenario: around ¾ percent of GDP.
  - Initial current account decline in the portfolio shift scenario: close to 1 percent of GDP.
  - Risk benchmark: a current account deficit heading toward 5 percent of GDP would likely indicate the dollar move has gone “too far”.
  - Downside scenario assumption: a rise in long-term interest rates of 150 bps for 4–6 quarters.
  - Historical example: in 1994, 10-year yields rose about 200bp over the course of the next 12 months after an accelerated policy tightening.
- Policy implications and staff advice
  - Context matters: identical exchange rate movements can have very different macroeconomic outcomes depending on origin.
  - Risks from further dollar strengthening:
    - Could push the U.S. external position away from levels justified by fundamentals and significantly debilitate growth.
    - Could create future risks in some emerging market economies as global imbalances reassert themselves.
  - Staff’s view on monetary policy normalization:
    - Strong case for waiting to raise rates until there are more tangible signs of wage or price inflation than are currently evident.
    - Policy should remain data dependent, looking at a broad range of available indicators and forecasts.
    - If data evolve in line with staff’s macroeconomic forecasts, and barring upside surprises, this implies keeping the fed funds rate at 0–0.25 percent into the first half of 2016 with a gradual rise thereafter.
    - A later increase could imply a faster pace of rate increases thereafter and may create a modest overshooting of inflation above the Fed’s medium-term goal (perhaps up toward 2½ percent).
  - Communication recommendation:
    - Schedule a press conference by the Fed chair after every FOMC meeting and publish a quarterly monetary policy report detailing economic projections endorsed by the FOMC.

### Authorities’ view on monetary policy and normalization; Neutral Rate (Box 4) and Monetary-Financial Stability Trade-offs
- Authorities’ view on policy
  - Incoming data will determine the course of monetary policy.
  - U.S. economy appears well positioned for continued growth; inflation is expected to move gradually up toward 2 percent as transitory negative influences wane.
  - Decision to raise rates depends on labor conditions and confidence inflation will return to the Fed’s objective.
  - Pace of normalization likely to be gradual; effective communication is critical.
  - Authorities prefer speeches, publications, and congressional testimony over additional press conferences; building consensus around an FOMC endorsed forecast is practically challenging.
- Box 4 — Neutral rate framework and findings
  - Semi-structural model estimates neutral rate r_n incorporating IS equation, Phillips curve, and an equation linking r_n to potential output growth plus exogenous factors; Bayesian estimation uses priors and shadow policy rates.
  - Key findings:
    - Neutral rate turned negative during the global financial crisis.
    - Neutral real rate has fallen steadily and was likely negative subsequent to the global financial crisis.
    - Fall driven by decline in trend potential output growth, a rise in global savings and an increase in the equity premium.
    - Policy remains accommodative; interest rate “gaps” show unconventional policies were needed in 2008–09.
    - Neutral rate projected to increase slowly; at a five year horizon it is likely well below the FOMC participants’ median forecast for the long-term real policy rate (of about 1.75 percent).
    - Even if policy rates begin gradually rising in the second half of 2015, monetary policy would remain accommodative until late 2016.
- Financial stability and monetary policy trade-offs
  - Theoretical pros: reacting to emerging signs of financial excess could raise welfare, lessening probability of costly financial instability events.
  - Cons and implementation challenges:
    - Risks shifting from banks to nonbanks complicates identification and mitigation.
    - Limited experience using monetary policy to address financial stability; transmission to financial risks not well understood.
    - Preliminary results: rate hikes lower growth in credit to households but shift composition of originators toward nonbanks.
  - Staff’s view:
    - Policy rates should not be used to reduce leverage or dampen financial stability risks at this stage.
    - Prioritize strengthening the macroprudential framework, developing regulatory tools, addressing gaps in regulation and supervision, accelerating research on the nexus between interest rate changes and financial vulnerabilities, and identifying appropriate measures of the financial cycle.

### Systemic Risk, Monetary Policy (Box 5) and Credit Cycles (Box 6)
- Box 5 — Systemic Risk and Monetary Policy
  - Non-linear DSGE framework with explicit intermediation and endogenous systemic risk variation.
  - Results:
    - Financial variables contain information useful for monetary policy.
    - Nonsystematic monetary policy reacting to financial risks can raise crisis probability.
    - Simple systematic policy rules that include measures of systemic risk can yield welfare improvements relative to rules focusing only on inflation and the output gap, implying incremental small increases in policy rates to lessen vulnerabilities.
    - Such rules can be counterproductive under large negative real shocks; welfare gains require the central bank can measure systemic risks with some accuracy and leverage is pro-cyclical.
    - Potential welfare gains from leaning with monetary policy are smaller than those from effective targeted countercyclical macro-prudential policy.
- Box 6 — Credit Cycles and The Macroeconomy (empirical findings)
  - Bank and non-bank credit to the private sector—particularly to households—have longer cycles than the business cycle.
  - Non-bank credit is more pro-cyclical than bank credit.
  - VAR analysis: a +100 Basis Points Fed Funds shock lowers growth in bank credit to households but nonbank credit to households expands and partially offsets the contraction.
  - Contraction in bank lending can be offset by expansion in nonbank credit; tighter liquidity may lead banks to rely on securitizations and financial innovations, potentially migrating credit to nonbanks.
  - Policy implication: strengthen resilience of both bank and nonbank systems in upswings; measures for nonbank resilience could include margin or haircut requirements in addition to enhanced capital and liquidity standards.

### Financial Soundness Indicators (selected series 2009–2014)
- Bank regulatory capital to risk weighted assets 1/: 13.9 14.8 14.7 14.5 14.4 14.4
- Bank capital to assets: 12.4 12.7 12.2 12.0 11.8 11.7
- Bank nonperforming loans to total loans: 5.0 4.4 3.8 3.3 2.5 2.0
- Bank provisions to nonperforming loans 2/: 57.7 64.5 62.5 58.5 65.6 75.4
- Bank return on assets 3/: 0.2 0.9 1.2 1.4 1.6 1.5
- Bank return on equity 3/: 1.7 6.9 9.6 11.6 13.2 12.6
- Notes:
  - Source: Global Financial Stability Report, April 2015.
  - 1/ Basel I
  - 2/ Data are from the website of the Federal Deposit Insurance Corporation
  - 3/ Data are annualized using quarterly underlying series reported by the authorities for dissemination on the IMF's FSI website.

### Introduction of a U.S. Carbon Tax (lessons and calibration)
- Rationale
  - U.S. pledge: reduce greenhouse gases by 26–28 percent below 2005 levels in 2025.
  - Carbon pricing is the most efficient way to achieve this commitment.
  - Decline of energy prices creates a window to introduce carbon pricing.
- Lesson from British Columbia
  - B.C. phased in a carbon tax rising to CAN $30 per ton in 2012 on fossil fuels; financed reductions in income and corporate taxes.
  - Example effects in B.C.:
    - Gasoline increased by about CAN 25 cents per gallon.
    - Tax financed a 5 percentage points reduction in the first two personal income tax brackets.
    - Corporate income tax rate reduction from 12 to 11 percent.
    - Five years after introduction, per capita growth in B.C. continued to be ½ percent higher than in the rest of Canada.
- Administration in the U.S.
  - Carbon charge could be built into existing gasoline and diesel excises and extended to other petroleum products, natural gas, and coal.
  - Potential U.S. coverage: about 150 petroleum refineries, 500 large natural gas operators, and about 1,500 coal mines.
- Calibrating the tax level and revenue projections
  - A tax of around US$45 per ton of CO2 would reflect costs of global climate change; a higher tax might be needed to meet the 2025 pledge.
  - Phased in gradually, a US$45 per ton CO2 tax would raise revenue of around US$170 billion (0.9 percent of GDP) once fully implemented.
- Price and distributional effects
  - Price impacts of a US$45 per ton CO2 charge:
    - Increase gasoline prices by about 40 cents a gallon.
    - Increase electricity prices by 2.2 cents per kWh.
    - Increase coal prices by US$90 per short ton.
  - Carbon charges are regressive; compensation mechanisms for low-income households (e.g., through the EITC or existing social benefits) would likely use around 10 percent of revenues.
  - Competitiveness concerns best addressed through international coordination over carbon pricing; the U.S. could provide leadership.

### Annex II — Public Debt Sustainability Analysis (DSA)
- Background and recent consolidation
  - Budget deficit reduced significantly, but public debt remains on an unsustainable trajectory over the medium term.
  - Federal public debt ratio doubled since 2007.
  - Significant consolidation measures legislated in 2011–13; Bipartisan Budget Act of December 2013 partially reversed cuts scheduled for FY2014 and FY2015 and replaced them with back-loaded savings from cuts to mandatory spending.
- Baseline projections and outlook
  - Baseline assumptions include savings from reduction in overseas contingency operations; assume current tax policies mostly extended (excluding bonus depreciation); assume automatic spending cuts partially reversed and replaced with back-loaded measures.
  - Federal debt held by the public projected to increase from 74 percent of GDP now to close to 80 percent of GDP in FY2025.
  - General government gross debt projected to exceed 110 percent of GDP by CY2024.
  - Under these assumptions the public debt ratio temporarily stabilizes in 2015–19 but starts rising thereafter owing to health care and social security spending pressures from an aging population.
  - Overall assessment: U.S. public finances remain on an unsustainable trajectory despite substantial deficit reduction.
- Adjustment scenario and policy targets
  - 2014 general government primary balance: -2.8 percent of GDP.
  - Staff medium-term objective: aim for a general government primary surplus of about ¾ percent of GDP (a federal government primary surplus of about 1 percent of GDP) to put the public debt ratio on a downward path.
  - Debt-stabilizing primary balance (table): 0.6 (percent of GDP).
- Debt servicing costs and interest-growth dynamics
  - Effective interest rate projected to rise gradually from current historical lows and reach about 4¾ percent by 2024 (compared to an average of about 4 percent in the previous 10 year period).
  - As interest rates normalize, real interest rates will become a major debt-creating flow over the medium term.
- Stress tests and sensitivity analysis
  - An increase of 200 basis points in the sovereign risk premium would produce a debt ratio about 15 percentage points above the baseline.
  - If real GDP growth is one standard deviation below the baseline, public debt would be about 8 percentage points above the baseline.
  - A 1 percentage point slippage in the planned consolidation over the next two years would lead to a debt-to-GDP ratio of 113 percent in 2024.
  - A combined macro-fiscal shock could raise the public debt ratio as high as 132 percent of GDP by the end of the 10-year horizon.
  - Exchange rate shocks are unlikely to have important implications for debt sustainability given all debt is denominated in local currency and the dollar’s reserve currency status.
- Mitigating factors
  - Depth and liquidity of the U.S. Treasury market and U.S. safe-haven status mitigate risks associated with relatively high external financing requirements.
  - Gross financing needs described as large but manageable given reserve currency status.

### Annex IV — Responses to Past Policy Advice (selected)
- Fiscal policy
  - Staff emphasized fixing long standing fiscal problems to slow entitlement spending and normalize the budget process.
  - Cost saving measures in the Affordable Care Act appear to be lowering health care inflation.
  - Staff advocated adopting a medium-term fiscal consolidation plan and recommended near-term budget envelope expansion measures to be funded by offsetting future savings, including front-loaded infrastructure spending, a better tax system, active labor market policies, and improving educational spending.
  - Prospects for progress on these measures remain unfavorable given lack of political consensus.
- Monetary policy
  - Staff supported maintaining policy rates at zero for longer (past mid-2015) given continued slack and muted inflationary pressures; stressed well-communicated normalization of policy.
- Financial policies
  - Substantial progress made on national and global financial reform agenda: enhanced capital and liquidity buffers, strengthened underwriting standards, greater transparency.
  - Remaining reforms include addressing vulnerabilities of money market funds and the tri-party repo market, resolution frameworks for too-important-to-fail institutions, and reforms to increase insurance sector resilience.
- Structural policies
  - Staff recommended expand the EITC, increase the minimum wage, invest in infrastructure and education, improve the tax system, use active labor market policies, implement skills-based immigration reform, and capitalize on energy independence gains.
  - Some increases in minimum wages have occurred at state and local levels; little progress on tax reform and immigration reform; no plan to raise gas tax or introduce a VAT or carbon tax.
- Housing finance
  - Administrative measures taken to lessen regulatory uncertainties and transfer risks from agencies to private investors; legislative proposals to reshape housing finance have made little headway.
- Recent developments and indicators
  - First quarter GDP revised to -0.2 percent.
  - Staff maintained annual growth projection for 2015 at 2.5 percent.
  - Core PCE inflation was 1.2 percent in May.
  - Nonfarm payrolls in June added 223 thousand jobs.
  - Unemployment rate fell to 5.3 percent.
  - Average hourly earnings slowed to 2.0 percent year-over-year in June—0.3 percentage points below Consensus expectations—from 2.3 percent in May.
  - Puerto Rico may be unable to service its $72 billion in public debt; Governor Padilla announced debts are “not payable”.
  - Impact of events in Greece on the U.S. (to date): U.S. equity markets fell by around 2 percent, the 10-year U.S. Treasury rate fell by 10 basis points, and the U.S. dollar strengthened around 1 percent versus the Euro.

*Source: IMF staff estimates and IMF staff materials contained in the provided unit.*

### 1. Macroeconomic Effects of the Oil Price Decline ____________________________________________________ 7

### 1. Macroeconomic Effects of the Oil Price Decline

### Oil production trends
- U.S. crude production almost doubled between 2010 and 2014, with the bulk of the increase driven by shale oil.
- Production should remain steady in 2015 due to the substantial investments of prior years.
- Given the depletion profile of existing fields, production is likely to decline in 2016 as the recent sudden stop in new investment begins to feed through.
- In North Dakota—the one of the two main centers of U.S. tight oil boom (after Texas)—the sector’s share in state GDP is below 5 percent. Employment share of the sector in total employment is also very small (0.6 percent).

### Macroeconomic impact — overview
- The oil and gas extraction industry accounts for about 1½–2 percent of GDP.
- During 2011–14, oil and gas investment contributed about 2½ percentage points to the level of U.S. real investment (equivalent to 0.4 percentage points of real GDP).
- Lower oil prices are net supportive of U.S. growth in the near term because of higher household purchasing power, but much of the positive consumption impulse will be partly offset by weaker oil-related investment.

### Investment/channel effects
- Industry analysts estimate that investment in shale and tight oil drilling and exploration could be reduced by around 40 percent in 2015.
- The direct GDP impact from reduced oil investment is likely to be around 0.3 percentage points in 2015 (and likely frontloaded in the first part of the year).
- Effects on other industry segments—such as support activities and oilfield services—could make the total effect modestly higher.
- Crude prices falling below breakeven thresholds have rendered extraction unprofitable for many U.S. fields, amplifying the investment contraction.

### Consumption/channel effects
- Lower gasoline prices alone will add 0.9 percent of GDP to household disposable income in 2015.
- There is a further savings of about 0.1 percent of GDP in utility bills in 2015.
- So far, evidence suggests these gains have been mostly saved, with the personal saving rate rising to 5.6 percent in April—about one percentage point above its level of 6 months ago.
- In the baseline forecast, the saving behavior is expected to be temporary; for 2015 as a whole, additional consumption from lower oil prices is forecast to contribute 0.6 percentage points to growth.

### Timing and outlook
- Net effects in 2015: positive consumption impulse and frontloaded negative investment impact, with the investment contraction concentrated in the first part of the year.
- Medium-term production outlook: steady in 2015, likely decline in 2016 as lower investment feeds through to output.
- Overall, the decline in oil prices supports growth in the remainder of the year but introduces sector-specific weakness and potential downside from falling production beyond 2015.

### Key statistics and magnitudes (preserved exactly)
- Oil and gas extraction industry share: about 1½–2 percent of GDP.
- Oil and gas investment contribution (2011–14): about 2½ percentage points to the level of U.S. real investment (equivalent to 0.4 percentage points of real GDP).
- Estimated reduction in shale and tight oil drilling and exploration investment in 2015: around 40 percent.
- Direct GDP impact from reduced oil investment in 2015: around 0.3 percentage points.
- Gasoline price effect on household disposable income in 2015: 0.9 percent of GDP.
- Utility bill savings in 2015: about 0.1 percent of GDP.
- Personal saving rate in April: 5.6 percent (about one percentage point above its level of 6 months ago).
- Forecast additional consumption contribution to 2015 growth from lower oil prices: 0.6 percentage points.

*Box 1. Macroeconomic Effects of the Oil Price Decline (excerpt).*

### Box 3. The Impact of U.S. Dollar Appreciation—The Importance of Context

### Box 3. The Impact of U.S. Dollar Appreciation—The Importance of Context

### Overview
- The impact of a stronger U.S. dollar depends highly on the underlying circumstances that generate the appreciation.  
- Analysis draws on a multi-country GIMF model, calibrated for the U.S.  
- The box illustrates three potential scenarios that generate a 5 percent appreciation and emphasizes general equilibrium effects on GDP, core inflation, and the current account.

### Scenario: Permanently higher U.S. shale oil production
- Trigger: An anticipated increase in shale oil production large enough to create a 5 percent appreciation of the exchange rate.  
- Key effects:
  - Boost to domestic demand.
  - Non-oil imports increase, while exports decline as a result of the appreciation.
  - Over the medium term: deterioration in the U.S. current account balance and a rebalancing of growth sources toward domestic demand.

### Scenario: Structural slowdown in Japan and Europe
- Trigger: Significant slowdown in trading partners large enough to lead to a 5 percent appreciation.  
- Key effects:
  - Initial impact: knocks around ½ percentage point off of growth.
  - Initial impact: raises the current account deficit by around ¾ percent of GDP.
  - Over a longer horizon: lower global oil prices and greater capital inflows into the U.S. would actually boost growth.

### Scenario: Temporary but persistent portfolio preference shift
- Trigger: Increased inflows into U.S. dollar assets producing a large and immediate effect on the exchange rate.  
- Key effects:
  - Loosening of domestic financial conditions as equity prices rise and bond yields fall.
  - Looser financial conditions support domestic demand, drawing in more imports.
  - Initial fall in the current account of close to 1 percent of GDP.
  - Over time: the dollar appreciation unwinds but domestic demand effects persist, causing the overall growth effect to eventually turn positive.

### Quantitative and threshold considerations reported in the text
- Illustrative appreciation size used across scenarios: 5 percent.
- Initial growth hit in the structural slowdown scenario: around ½ percentage point.
- Initial current account worsening in the structural slowdown scenario: around ¾ percent of GDP.
- Initial current account decline in the portfolio shift scenario: close to 1 percent of GDP.
- Risk benchmark noted: a current account deficit heading toward 5 percent of GDP would likely indicate the dollar move has gone “too far”.
- Downside scenario assumption: a rise in long-term interest rates of 150 bps for 4–6 quarters.
- Historical example: in 1994, 10-year yields rose about 200bp over the course of the next 12 months after an accelerated policy tightening.

### Policy implications and staff advice
- Context matters: identical exchange rate movements can have very different macroeconomic outcomes depending on origin (supply shock, demand divergence, portfolio flows).  
- Risks from further dollar strengthening:
  - Could push the U.S. external position away from levels justified by fundamentals and significantly debilitate growth.
  - Could create future risks in some emerging market economies as global imbalances reassert themselves.
- Staff’s view on monetary policy normalization:
  - Strong case for waiting to raise rates until there are more tangible signs of wage or price inflation than are currently evident.
  - Policy should remain data dependent, looking at a broad range of available indicators and forecasts.
  - If data evolve in line with staff’s macroeconomic forecasts, and barring upside surprises, this implies keeping the fed funds rate at 0–0.25 percent into the first half of 2016 with a gradual rise thereafter.
  - A later increase could imply a faster pace of rate increases thereafter and may create a modest overshooting of inflation above the Fed’s medium-term goal (perhaps up toward 2½ percent).
- Communication recommendation:
  - Effective communication about the expected path of policy interest rates is at a premium.
  - Past Fund advice reiterated: schedule a press conference by the Fed chair after every FOMC meeting and publish a quarterly monetary policy report detailing economic projections endorsed by the FOMC.

### Related macro risks and contextual notes (as discussed in the surrounding text)
- Uncertainty about the effect of lower oil prices: household saving behavior and investment responses could damp or amplify demand effects.
- Student loan statistic cited: student loans have grown to over US$1 trillion or 7½ percent of GDP.
- Long-term fed funds rate assumption in staff baseline: 3.5 percent.
- Trade-offs highlighted:
  - Raising rates too early could trigger greater-than-expected tightening of financial conditions and risk stalling the economy.
  - Raising rates too late could require a more rapid path upward later with negative consequences for financial market volatility and the macroeconomy.

*Source: IMF staff estimates.*

### 22.      Authorities’ view. The course of monetary policy will be determined by the path of

### 22.      Authorities’ view. The course of monetary policy will be determined by the path of

### Authorities’ view on monetary policy and normalization
- Incoming data will determine the course of monetary policy and what it reveals about the economy.
- The U.S. economy appears well positioned for continued growth and inflation is expected to move gradually up toward 2 percent as the economy strengthens further and as transitory negative influences wane.
- The decision to raise rates depends on:
  - whether policy makers see the recovery as sufficiently strong to generate continued improvement in labor conditions, and
  - whether they are reasonably confident that inflation will move back towards the Fed’s inflation objective.
- While the timing of the first rate hike received attention, the path of subsequent policy rate changes was emphasized as more important; the authorities emphasized the pace of normalization was likely to be gradual.
- Effective communication was seen as critical.
- The authorities saw little benefit from more press conferences and emphasized alternative avenues of communication, including speeches, publications, and congressional testimony.
- Practical challenges exist in building consensus around an FOMC endorsed forecast given the size of the FOMC and varying views among members.

### Box 4 — Lower for Longer: Estimates of the Neutral Rate (framework and findings)
- Framework:
  - A semi-structural model is used to estimate the neutral rate for the U.S., incorporating:
    - Relationships between output gap and interest rates gaps (IS equation),
    - Inflation and the output gap (Phillips curve),
    - An equation linking the neutral rate to potential output growth plus other exogenous factors.
  - Variables and components explicitly noted: output gap ( ), real (policy) interest rate (r), neutral rate (r_n), core inflation ( ), import and oil price shocks (π_m, π_o), potential output growth (g), an exogenous autoregressive process (z), and shocks ( ).
  - Bayesian estimation incorporates prior information on the output gap and potential output (based on a production function approach) and accounts for unconventional monetary policies at the zero lower bound by using estimates of “shadow” policy rates.
- Key findings:
  - The neutral rate turned negative during the global financial crisis.
  - Model estimates show the neutral real rate has fallen steadily over time and was likely negative subsequent to the global financial crisis.
  - The fall in neutral rates is driven by a decline in trend potential output growth, a rise in global savings and an increase in the equity premium.
  - Policy continues to be accommodative: interest rate “gaps” show unconventional policies were needed in 2008–09; the negative rate gap calculated using shadow policy rates suggests policies have been highly accommodative for the past six years.
  - The neutral rate is projected to increase slowly:
    - Conditional on the staff’s medium-term forecast for output, inflation and policy rates, model based projections point to a very slow increase in the neutral rate in the years ahead.
    - At a five year horizon, even though the output gap has closed the neutral rate is likely to be well below the FOMC participants’ median forecast for the long-term real policy rate (of about 1.75 percent).
    - As a result, even if policy rates begin gradually rising in the second half of 2015 (as in staff’s forecast), monetary policy would remain accommodative (i.e. with actual policy rates below the neutral rate) until late 2016.
- References noted in the box:
  - Pescatori, A. and Turunen, J., “Lower for Longer: Neutral Rates in the United States”, IMF Working Paper, 15/135.
  - Laubach, T. and Williams, J. (2003): “Measuring the Natural Rate of Interest”, Review of Economics and Statistics 85(4).

### Financial stability and monetary policy: trade-offs and evidence
- Central question: Should policy rates be raised more aggressively than warranted by the inflation-employment outlook to “lean against the wind” and lessen future financial stability concerns?
- The pros (theoretical support):
  - Academic literature suggests reacting to emerging signs of financial excess could raise welfare—foregoing some employment gains but lessening the probability of financial instability events with high economic cost (references include Woodford, 2012 and Ajello et al, 2015).
  - Monetary policy could be sensible if other, more targeted, options are unavailable.
  - Little theoretical support for nonsystematic policies that wait for vulnerabilities to rise and then use interest rates to try to “prick the bubble”.
- The cons (implementation challenges and imperfect understanding of transmission):
  - Risks in the U.S. are shifting from banks to nonbanks, complicating identification and tackling of systemic risks.
  - Little experience in using monetary policy to address financial stability concerns creates challenges for both interest rate and macroprudential policy.
  - Policymakers may find it difficult to systematically identify and measure rising financial excesses in a timely manner.
  - The transmission mechanism from policy rate changes to underlying financial risks is not well understood.
  - Preliminary results suggest rate hikes lower growth in credit to households but shift the composition of originators toward nonbanks (see Box 6).
- Staff’s view:
  - Policy rates should not be used to reduce leverage or dampen financial stability risks at this stage.
  - Efforts should be targeted toward strengthening the macroprudential framework, developing regulatory tools, and addressing gaps in regulation and supervision.
  - Authorities should prioritize understanding how monetary policy addressing financial stability would apply in the complex U.S. system, accelerate research on the nexus between interest rate changes and financial vulnerabilities, and identify appropriate measures of the financial cycle.

### Box 5 — Systemic Risk and Monetary Policy (analytical framework and results)
- Analytical framework:
  - A non-linear DSGE model with reasonable macro and asset pricing properties, explicit intermediation system, and endogenous variation in systemic risk allows joint analysis of monetary policy and financial stability risks.
- Results:
  - Financial variables (financial leverage or risk premia) contain information potentially useful for conducting monetary policy.
  - Nonsystematic monetary policy that reacts to financial risks is likely to raise, not lower, risks; an unanticipated policy tightening, especially when the financial system is fragile or leverage is high, increases probability of crisis.
  - Relatively simple, systematic policy rules that aim to stabilize inflation, the output gap, and measures of systemic risk (e.g. cyclical leverage or mispricing of risk) can yield welfare improvements relative to rules focusing only on inflation and the output gap.
    - Incorporating financial stability concerns would imply incrementally moving the policy rate higher by relatively small amounts to lessen the build-up of vulnerabilities.
  - Such simple rules can be counterproductive when the economy is hit by a large negative real shock that induces a fall in asset prices and increases the probability of crisis—arguing for more complex responses in such cases.
  - The welfare improvement requires:
    - The central bank can measure systemic risks with some accuracy (e.g. mispricing of risk).
    - Leverage is pro-cyclical (empirical evidence suggests this for some sectors, e.g. broker-dealers and, to some extent, large commercial banks).
  - Potential welfare gains from monetary policy leaning against systemic risks are smaller than from an effective and targeted countercyclical macro-prudential policy, in part because optimal tightening through interest rate policy is limited by employment-inflation tradeoffs.
- Reference: S. Laseen, A. Pescatori, and J. Turunen, “Systemic Risk: A New Trade-off for Monetary Policy?” IMF Working Paper, 15/142.

### Box 6 — Credit Cycles and The Macroeconomy (empirical findings)
- Key empirical findings from U.S. Financial Accounts:
  - Bank and non-bank credit to the private sector—particularly to households—have longer cycles than the business cycle.
  - Intra-financial sector credit cycles (bank-to-bank and bank-to-nonbank) appear shorter than the business cycle.
  - Non-bank credit is more pro-cyclical than bank credit (i.e., with a higher synchronization ratio).
  - Credit to banks (either from other banks or from nonbanks) is the least synchronized with the macroeconomic cycle.
  - A VAR analysis shows growth in credit to households is lowered as policy rates rise, but compositional effects matter:
    - Contraction in bank lending is partially offset by expansion in nonbank credit to households.
  - Different reactions of banks and nonbanks to a rates shock reflect interconnectedness; tighter liquidity may lead banks to rely on securitizations and financial innovations, potentially migrating credit to nonbanks.
  - The procyclicality of nonbank credit stresses the need to strengthen resilience of both bank and nonbank systems in upswings.
    - Measures to boost nonbank resilience could include margin or haircut requirements in addition to enhanced capital and liquidity standards.
- Reference: A. Herman, D. Igan and J. Solé “The Macroeconomic Relevance of Credit Flows: An Exploration of U.S. Data” IMF Working Paper, 15/143.
- Empirical impulse responses shown:
  - Impact of +100 Basis Points Fed Funds Shock:
    - Impact on growth of bank credit to households (percentage points): charted negative effects over periods up to 20
    - Impact on growth of nonbank credit to households (percentage points): charted positive/offsetting effects over periods up to 20

### Authorities’ view (financial stability) and investing in resilience
- Authorities’ view:
  - Intensive efforts underway at the Federal Reserve and elsewhere to examine impact of using interest rate policy to reduce risk of future bouts of financial instability.
  - The state of understanding of how such a policy might affect the economy and the trade-offs involved is nascent; “the jury is still out” on advisability in the U.S. context.
  - Current level of financial risks was seen as moderate; other tools are available to manage emerging risks (such as countercyclical capital buffers or margin requirements).
- Important progress since Dodd-Frank Act:
  - Measures include enhanced capital and liquidity buffers, strengthened underwriting standards in housing, and greater transparency to mitigate counterparty risks.
  - Growing evidence these efforts have had tangible, positive macroeconomic effects in lessening financing constraints and boosting investment (see Box 7 referenced).
- Strengthening regulatory coordination and preparedness — five near-term priorities:
  - The Financial Stability Oversight Council (FSOC):
    - Given complexity and number of agencies, FSOC effectiveness in proactively identifying and addressing risks in a timely and assertive manner is critical.
    - Recommendations:
      - All individual FSOC member agencies should have an explicit financial stability mandate.
      - Each material threat identified in FSOC Annual Reports should be accompanied by a list of specific follow-up actions with regular reporting of progress.
      - For newly designated entities, oversight by the Federal Reserve should be put in place on an expedited timetable and delays in implementing enhanced regulatory measures should be minimized.
      - Greater clarity needed on roles and responsibilities for system-wide crisis preparedness and management under FSOC.
  - Data blind spots:
    - Despite OFR, Fed, and FSOC agency work, comprehensive information to fully assess financial stability risks and interconnections is lacking.
    - Data is compartmentalized; no single agency has a full picture.
    - Greater efforts needed to overcome legal, technological and other obstacles to provide FSOC and OFR with comprehensive data; continued cross-agency collaboration is valuable.
  - Insurance:
    - While capital positions have improved, the search for yield has prompted insurers to take on greater risks (private equity, hedge funds, riskier corporate bonds, real-estate-related assets).
    - Absence of national standards or consolidated supervision makes assessment tentative and incomplete.
    - Specific needs:
      - A coordinated, nationally consistent approach to regulation (valuation and solvency requirements), supervision and stress testing to converge standards and eliminate regulatory arbitrage (e.g., through captive insurers).
      - Assign regulatory responsibilities to an independent agency that is adequately resourced, with a nation-wide mandate, operational independence, appropriate powers, and accountability.
      - Neither the Federal Insurance Office nor the National Association of Insurance Commissioners is currently equipped to take on this role, though their expertise would be indispensable for a new nation-wide body.

### Financial Soundness Indicators (selected series 2009–2014)
- Bank regulatory capital to risk weighted assets 1/: 13.9 14.8 14.7 14.5 14.4 14.4
- Bank capital to assets: 12.4 12.7 12.2 12.0 11.8 11.7
- Bank nonperforming loans to total loans: 5.0 4.4 3.8 3.3 2.5 2.0
- Bank provisions to nonperforming loans 2/: 57.7 64.5 62.5 58.5 65.6 75.4
- Bank return on assets 3/: 0.2 0.9 1.2 1.4 1.6 1.5
- Bank return on equity 3/: 1.7 6.9 9.6 11.6 13.2 12.6
- Notes:
  - Source: Global Financial Stability Report, April 2015.
  - 1/ Basel I
  - 2/ Data are from the website of the Federal Deposit Insurance Corporation
  - 3/ Data are annualized using quarterly underlying series reported by the authorities for dissemination on the IMF's FSI website.

*Source: IMF staff estimates.*

### Box 7. Effects of Bank Capital on U.S. Corporate Investment

### Box 7. Effects of Bank Capital on U.S. Corporate Investment

### Context
- Since the global financial crisis, bank capital has improved substantially.
- New capital requirements, increases in the leverage ratio for systemically important banks (to 6 percent), and new requirements on capital plans have led to balance sheet repair albeit at different speeds across countries.

### Analysis
- Dataset: over 11,000 nonfinancial firms in 16 advanced economies are used to draw out macrofinancial implications of bank capital strengthening and its measurable impact on the real economy.
- Related research cited: Y. Sun and H. Tong, “How Does Post-Crisis Bank Capital Adequacy Affect Firm Investment?” IMF Working Paper, 15/145.

### Main findings
- Firms relying more on funding from the financial system (rather than from internally generated earnings) invest more in countries where the average equity-to-assets ratio of the banking system is highest.
- Magnitude of the effect:
  - The increase in bank capital in the U.S. from 2007 to 2013 would, all else constant, add 0.6 percent of GDP to the overall level of U.S. corporate investment.
  - Conversely, if U.S. banks today maintained the average level of equity-assets that is currently prevailing in European banks, the U.S. would have 0.7 percent of GDP less investment (purely from the effect that lower capital has on the availability of credit to those firms reliant on financial system funding).
- The investment effect is more pronounced when the sample is restricted to the top one-third of firms in terms of the underlying quality of their fundamentals (as measured by their one year ahead probability of default). This indicates that insufficient bank capital is a binding constraint on firms with productive investment opportunities.

### Robustness
- Empirical findings are robust to:
  - Inclusion of other explanatory variables that might affect banks’ willingness to extend credit (such as the system’s average ratio of nonperforming loans or the share of intermediation undertaken by banks rather than capital markets).
  - Changing the sample of countries.
  - Restricting the sample to a subset of sectors.

*Source: Box 7. Effects of Bank Capital on U.S. Corporate Investment, IMF staff.*

### Introduction  of

### Introduction of carbon tax in B.C.

### Rationale for a U.S. carbon tax
- The U.S. has pledged to reduce greenhouse gases by 26–28 percent below 2005 levels in 2025.
- Carbon pricing is the most efficient way to achieve this commitment.
- The introduction of a carbon tax in the U.S. would increase the price of fuels and electricity and help incentivize mitigation efforts and clean technology investments.
- The recent decline of energy prices creates a window of opportunity to introduce carbon pricing.

### Lesson from British Columbia
- In 2008, British Columbia phased in a carbon tax (rising to CAN $30 per ton in 2012) on fossil fuels in transportation, home heating, and electricity to finance reductions in income and corporate taxes.
- Example effects in British Columbia:
  - Gasoline increased by about CAN 25 cents per gallon.
  - The tax financed a 5 percentage points reduction in the first two personal income tax brackets.
  - Corporate income tax rate reduction from 12 to 11 percent.
  - Focus on upstream taxation minimized administrative issues and led to a substantial decline in fossil fuel consumption relative to other provinces.
  - Five years after the introduction, per capita growth in British Columbia continued to be ½ percent higher than in the rest of Canada.

### Administration in the U.S.
- Administration of carbon taxes in the U.S. should be straightforward by building a carbon charge into existing gasoline and diesel excises and extending similar charges to the supply of other petroleum products, natural gas, and coal.
- Potential coverage in the U.S. would involve administering taxes on about 150 petroleum refineries, 500 large natural gas operators, and about 1,500 coal mines.

### Calibrating the tax level and revenue projections
- A tax of around US$45 per ton of CO2 would reflect costs of global climate change, although a higher tax might be needed to meet the 2025 pledge.
- Leaving global effects aside, a substantial carbon tax would result in domestic environmental benefits from less fossil fuel use (e.g., better health outcomes from reduced local air pollution).
- Phased in gradually, a US$45 per ton CO2 tax would raise revenue of around US$170 billion (0.9 percent of GDP) once fully implemented.

### Potential effects and distributional considerations
- Price impacts of a US$45 per ton CO2 charge:
  - Increase gasoline prices by about 40 cents a gallon.
  - Increase electricity prices by 2.2 cents per kWh.
  - Increase coal prices by US$90 per short ton.
- Carbon charges are regressive; introduction may need compensation mechanisms for low-income households (e.g., through the EITC or existing system of social benefits).
  - Such compensation would likely use around 10 percent of revenues.
- Competitiveness concerns would be best addressed through international coordination over carbon pricing; the U.S. could provide a leadership role.

*Italicized source: IMF staff summary from the Introduction of carbon tax in B.C. content unit.*

### Annex II. Public Debt Sustainability Analysis (DSA)

### Annex II. Public Debt Sustainability Analysis (DSA)

### Background and recent consolidation
- The budget deficit in the United States has been reduced significantly over the past few years, but public debt remains on an unsustainable trajectory over the medium term.
- Significant fiscal consolidation measures were legislated in 2011–13; the Bipartisan Budget Act of December 2013 partially reversed cuts scheduled for FY2014 and FY2015 and replaced them with back-loaded savings from cuts to mandatory spending.
- The public debt ratio at the federal government level doubled since 2007 as a result of the financial crisis and recession.

### Baseline projections and outlook
- Baseline assumptions:
  - Includes savings from the reduction in overseas contingency operations.
  - Assumes current tax policies are mostly extended (notably excluding bonus depreciation).
  - Assumes automatic spending cuts are partially reversed and replaced with back-loaded measures (similar to the Bipartisan Budget Act).
- Key baseline projections and assessments:
  - Federal debt held by the public is projected to increase from 74 percent of GDP now to close to 80 percent of GDP in FY2025.
  - General government gross debt is projected to exceed 110 percent of GDP by CY2024.
  - Under these assumptions the public debt ratio temporarily stabilizes in 2015–19 but starts rising thereafter owing to health care and social security spending pressures from an aging population.
  - Overall assessment: despite substantial deficit reduction and legislated savings, U.S. public finances remain on an unsustainable trajectory.

### Adjustment scenario and policy targets
- The 2014 general government primary balance was -2.8 percent of GDP.
- Staff view for appropriate medium-term objective:
  - Aim for a general government primary surplus of about ¾ percent of GDP (a federal government primary surplus of about 1 percent of GDP) to put the public debt ratio firmly on a downward path.
  - Note: the target primary surplus would need to be higher in the long run to return the debt ratio closer to pre-crisis levels by 2030.
- Debt-stabilizing primary balance (table): 0.6 (percent of GDP).

### Debt servicing costs and interest-growth dynamics
- Current favorable interest rate–growth differential benefits fiscal projections: real interest rates have fallen well below GDP growth.
- Under staff baseline, the effective interest rate is projected to rise gradually from current historical lows and reach about 4¾ percent by 2024 (compared to an average of about 4 percent in the previous 10 year period).
- As interest rates normalize, real interest rates will become a major debt-creating flow over the medium term.

### Realism and historical context
- Baseline economic assumptions and fiscal projections are generally within the error band observed for all countries.
- The projected fiscal adjustment is ambitious but realistic based on consolidation episodes observed in 1990–2011.

### Stress tests and sensitivity analysis
- Public debt dynamics are highly sensitive to growth and interest rate assumptions; this reflects that U.S. public debt ratio already exceeds 100 percent of GDP in some metrics.
- Key stress-test results:
  - An increase of 200 basis points in the sovereign risk premium would produce a debt ratio about 15 percentage points above the baseline.
  - If real GDP growth is one standard deviation below the baseline, public debt would be about 8 percentage points above the baseline.
  - A 1 percentage point slippage in the planned consolidation over the next two years would lead to a debt-to-GDP ratio of 113 percent in 2024.
  - A combined macro-fiscal shock could raise the public debt ratio as high as 132 percent of GDP by the end of the 10-year horizon.
- Exchange rate shocks are unlikely to have important implications for debt sustainability given that all debt is denominated in local currency and the dollar’s reserve currency status.

### Mitigating factors
- The depth and liquidity of the U.S. Treasury market and the U.S. safe-haven status at times of distress mitigate risks associated with relatively high external financing requirements.
- Gross financing needs are described as large but manageable given the global reserve currency status of the United States.

*Source: IMF staff — Annex II. Public Debt Sustainability Analysis (DSA).*

### Annex IV. Responses to Past Policy Advice

### _cr15168 - Annex IV. Responses to Past Policy Advice

### Fiscal policy
- Staff emphasized fixing long standing fiscal problems to slow entitlement spending and normalize the budget process.
- Cost saving measures that were part of the Affordable Care Act appear to be lowering health care inflation.
- A continuing resolution for the rest of FY2015 passed in December 2014, subsequent extension of funding for the Department of Homeland Security, and bipartisan support for passing a reform package that ends automatic Medicare payment cuts to doctors (the so-called “Doc-Fix”) were positive steps that lessened fiscal uncertainties.
- Staff advocated adopting a medium-term fiscal consolidation plan to restore long-run fiscal sustainability, stressing that early action is needed to slow entitlement spending.
- Near-term budget envelope expansion measures recommended by staff (to be funded by offsetting savings in future years) included:
  - front-loaded infrastructure spending,
  - a better tax system,
  - active labor market policies,
  - improving educational spending.
- The prospects for progress on these measures remain unfavorable, given the lack of political consensus.

### Monetary policy
- Given continued economic slack and expectation of muted inflationary pressures, staff supported maintaining policy rates at zero for longer (past mid-2015) than foreseen by markets at the time of the last consultation.
- Staff stressed the importance of a well communicated normalization of U.S monetary policy conditions, in the context of robust U.S growth, and pointed to scope for enhancements to the Fed’s communications toolkit.
- The Fed continues to maintain a supportive monetary policy and has made significant efforts—in FOMC statements, press conferences, and speeches—to strengthen its communication and prepare markets for normalization.

### Financial policies
- Based on the 2010 FSAP and subsequent work, staff recommended steps to tackle financial sector risks, particularly those related to activities in nonbank intermediaries.
- Substantial progress has been made on the national and global financial reform agenda, with many policy suggestions implemented, including:
  - enhanced capital and liquidity buffers,
  - strengthened underwriting standards in the housing sector,
  - greater transparency to mitigate counterparty risks,
  - progress in collecting more comprehensive information to assess risks.
- Remaining reforms emphasized by staff that still require completion:
  - addressing remaining vulnerabilities of the money market funds and the tri-party repo market,
  - allowing for the orderly resolution of too-important-to-fail financial institutions,
  - reforms to increase the resilience of the insurance sector.

### Structural policies
- Staff recommended structural measures to counter the slowdown in potential growth and high poverty rates, including:
  - expand the EITC,
  - increasing the minimum wage,
  - investing in infrastructure and education,
  - improving the tax system,
  - using active labor market policies,
  - implementing a broad, skills-based approach to immigration reform,
  - capitalizing on the gains from rising U.S. energy independence.
- Policy developments:
  - The Administration has taken measures to increase wages for some workers and several states and localities have increased minimum wages.
  - Little progress toward a tax-system reform in the staff-advised direction (a less complex system with a broader tax base and lower rates).
  - Support for immigration reform is elusive.
  - There is no plan to raise the gas tax or to introduce a VAT or a carbon tax.

### Housing finance
- Staff stressed policy measures to encourage greater availability of mortgage credit, while clarifying the future role of government in housing finance.
- Administrative measures have been taken to lessen regulatory uncertainties and to transfer risks from the agencies to private investors through market transactions.
- Legislative proposals to more fundamentally reshape housing finance have made little headway in Congress.

### Staff Representative statement updates and recent developments
- Growth revision: First quarter GDP was revised up to -0.2 percent.
- Staff maintained its annual growth projection for 2015 at 2.5 percent.
- Recent indicators: real personal consumption expenditures and consumer sentiment rebounded in May; personal income growth remains solid; manufacturing surveys are improving; housing data shows a mild but steady recovery.
- Inflation: core PCE inflation was 1.2 percent in May.
- Labor market:
  - Nonfarm payrolls in June added 223 thousand jobs.
  - Unemployment rate fell to 5.3 percent, mainly reflecting a decline in the participation rate.
  - Average hourly earnings slowed to 2.0 percent year-over-year in June—0.3 percentage points below Consensus expectations—from 2.3 percent in May.
- Supreme Court: In a 6-3 decision, the U.S. Supreme Court upheld a key provision of the Affordable Care Act; health insurance subsidies continue to be available for states using the federal exchange.
- Trade: Trade Promotion Authority was approved by Congress and signed by President Obama on June 24.
- Export-Import Bank: Authority to extend new loans, guarantees or credit insurance expired on June 30; the bank will continue to operate and manage transactions related to its existing portfolio.
- Puerto Rico fiscal crisis:
  - Puerto Rico may be unable to service its $72 billion in public debt.
  - On July 1 the Puerto Rico Electricity Power Authority reached an agreement to meet a debt service payment due that day and extended a forbearance agreement until September 15.
  - Puerto Rico’s Governor Padilla announced on June 30 that the commonwealth’s debts are “not payable” and established a working group to analyze, by August 30, options for a “complete restructuring and development plan.”
- Impact of events in Greece on the U.S. (to date): U.S. equity markets fell by around 2 percent, the 10-year U.S. Treasury rate fell by 10 basis points, and the U.S. dollar strengthened around 1 percent versus the Euro.

*Annex IV. Responses to Past Policy Advice — IMF staff materials as contained in the provided unit*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15168.pdf_