{
  "title": "External Shocks and Monetary Policy Trade-offs in Low-Income Countries",
  "publication": "IMF Working Papers, October 3, 2025",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2025/10/03/external-shocks-and-monetary-policy-trade-offs-in-low-income-countries-570728",
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  "summary": "We present an Open Economy HANK model with relevant features for Low-Income Countries (LICs): hand-to-mouth households and a subsistence consumption for tradable goods. With the model calibrated for a representative LIC, we illustrate our broader framework with a shock to external prices.",
  "sections": [
    {
      "heading": "Authors and Publication",
      "content": "- Authors: Juan Passadore, Giovanni Sciacovelli, Filiz D Unsal, Carlos van Hombeeck\n- Publication: IMF Working Papers\n- Working Paper No.: 2025/204\n- Volume: 2025\n- Issue: 204\n- Pages: 73\n- DOI: https://doi.org/10.5089/9798229025836.001\n- Stock No: WPIEA2025204\n- ISBN: 9798229025836\n- ISSN: 1018-5941\n- Publication date: October 3, 2025"
    },
    {
      "heading": "Model and Calibration",
      "content": "- Framework: Open Economy HANK model tailored to Low-Income Countries (LICs).\n- Key features preserved from source:\n  - Hand-to-mouth households.\n  - A subsistence consumption component for tradable goods.\n- Calibration: Model calibrated for a representative LIC to illustrate framework responses."
    },
    {
      "heading": "External Price Shock: Macroeconomic Effects",
      "content": "- Core simulated shock: shock to external prices.\n- Macro outcomes reported:\n  - The shock causes a consumption-led recession.\n  - An increase in inflation.\n  - A drop in real wages."
    },
    {
      "heading": "Distributional Effects",
      "content": "- Consumption inequality:\n  - Consumption inequality rises following the external price shock.\n  - Mechanism: poor households cannot insure against the shock; richer households can tap into their wealth.\n- Welfare impacts:\n  - Poorer households’ welfare cannot be substantively improved by monetary policy due to offsetting effects on real wages and labor demand."
    },
    {
      "heading": "Monetary Policy Analysis and Simulations",
      "content": "- Simulated alternatives:\n  - Simulations of the effects of alternative monetary policy responses on inequality yield similar findings (i.e., limited ability of monetary policy to improve poorer households’ welfare).\n- Transmission channels emphasized:\n  - Real wages and labor demand interactions that offset monetary policy effects for poorer households."
    },
    {
      "heading": "Policy Implications and Recommendations",
      "content": "- Monetary policy trade-off:\n  - Monetary policy is constrained in its capacity to redistribute or materially improve welfare for the poor under the modeled external shock.\n- Fiscal policy recommendation:\n  - In this setting, fiscal transfers are a more effective tool for redistribution across households."
    },
    {
      "heading": "Subject Areas and Keywords (as listed)",
      "content": "- Subject: Consumption, Import prices, Income, Inflation, Labor, National accounts, Prices, Real wages\n- Keywords: Consumption, consumption inequality, IMF working papers, Import prices, Income, Inequality, Inflation, Low-income Countries, Monetary Policy, monetary policy response, monetary policy trade-off, Open Economy HANK, Real wages, representative LIC\n\nIMF Working Paper: \"External Shocks and Monetary Policy Trade-offs in Low-Income Countries\", Working Paper No. 2025/204 (October 3, 2025) by Juan Passadore, Giovanni Sciacovelli, Filiz D Unsal, and Carlos van Hombeeck.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2025/10/03/external-shocks-and-monetary-policy-trade-offs-in-low-income-countries-570728"
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    "Authors: Juan Passadore, Giovanni Sciacovelli, Filiz D Unsal, Carlos van Hombeeck",
    "Published: October 3, 2025",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798229025836.001",
    "Authors: Juan Passadore, Giovanni Sciacovelli, Filiz D Unsal, Carlos van Hombeeck",
    "Publication: IMF Working Papers",
    "Working Paper No.: 2025/204",
    "Volume: 2025",
    "Issue: 204",
    "Pages: 73",
    "DOI: https://doi.org/10.5089/9798229025836.001",
    "Stock No: WPIEA2025204",
    "ISBN: 9798229025836",
    "ISSN: 1018-5941",
    "Publication date: October 3, 2025",
    "Framework: Open Economy HANK model tailored to Low-Income Countries (LICs).",
    "Key features preserved from source:",
    "Calibration: Model calibrated for a representative LIC to illustrate framework responses.",
    "Core simulated shock: shock to external prices.",
    "Macro outcomes reported:",
    "Consumption inequality:",
    "Welfare impacts:",
    "Simulated alternatives:",
    "Transmission channels emphasized:",
    "Monetary policy trade-off:",
    "Fiscal policy recommendation:",
    "Subject: Consumption, Import prices, Income, Inflation, Labor, National accounts, Prices, Real wages",
    "Keywords: Consumption, consumption inequality, IMF working papers, Import prices, Income, Inequality, Inflation, Low-income Countries, Monetary Policy, monetary policy response, monetary policy trade-off, Open Economy HANK, Real wages, representative LIC",
    "**Working Paper**"
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