Topic 1: Modeling Policy Choices
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Overview and analytical framework
- The development of models for the analysis of economic policies in low-income countries (LICs) has been one of the key achievements of the FCDO-IMF research project.
- Workhorse models used:
- Forecasting and Policy Analysis System (FPAS)
- Debt, Investment and Growth (DIG) model
- DIGNAR (extension of DIG to include natural resources)
- These models have been used extensively by policymakers and IMF country teams to illustrate likely consequences of policy choices, particularly monetary policy and various fiscal policies.
- The analytical models are positioned as useful in guiding policy making in unprecedented and uncertain situations such as the COVID-19 pandemic.
Evolution across the four phases of the FCDO-IMF partnership
- Phase 1 (March 2012 to March 2015)
- Focus: advance analytics of monetary and exchange rate policy in LICs; develop and pilot analytic tools for short-run macroeconomic policy issues.
- Also developed model-based frameworks for:
- public investment, growth, and debt sustainability
- managing natural resources
- Empirical and country case studies investigated the investment-growth nexus.
- Achievements include:
- Research papers: "The Monetary Transmission Mechanism in the Tropics: A Narrative Approach" and "Public Investment, Growth, and Debt Sustainability: Putting together the Pieces"
- Policy papers: "Conditionality in Evolving Monetary Policy Regimes" and "Macroeconomic Policy Frameworks for Resource-Rich Developing Countries"
- Phase 2 (April 2015 to March 2017)
- Focus: enrich understanding of special features of low-income economies in analysis and design of short-run macroeconomic policies; continue empirical studies and case studies to obtain stylized facts in LICs; facilitate continued application of tools including training.
- Achievements include:
- Research papers: "Current account norms in natural resource rich and capital scarce economies" and "Debt Sustainability, Public Investment, and Natural Resources in Developing Countries: The DIGNAR Model"
- Model applications: DIG model applied to Lesotho; DIGNAR model applied to Namibia
- Policy paper: "Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries"
- Phase 3 (April 2017 to March 2020)
- Focus: add features of the LIC environment missing from earlier models, notably a description of the labor market with extensive informality, unemployment, and wage-setting behavior observed in these economies; disseminate model results to policymakers through courses.
- Achievements include:
- Research paper: "Inflation targeting and exchange rate management in less developed countries"
- Paper: "Monetary Policy and Bank Lending in Developing Countries: Loan Applications, Rates, and Real Effects"
- Book: "Monetary Policy in Sub-Saharan Africa"
- Phase 4 (April 2020 to March 2025)
- Focus: push frontier of research on public debt vulnerabilities in LICs; extend DIGNAR to capture impacts of COVID-19 on debt and growth; examine implications of shift in debt composition in LICs from traditional to non-traditional lenders; develop research on governance and policy frameworks for central banks in LICs with a focus on monetary policy.
- Planned workstreams:
- Extension of the DIGNAR model to capture COVID-19 effects on debt and growth
- Analysis of shift in debt composition in LICs from traditional to non-traditional lenders
- Cutting-edge research agenda on governance and policy frameworks for central banks in LICs, focusing on monetary policy
Practical use and policy relevance
- The models have been extensively used by policymakers and IMF country teams, suggesting usefulness in illustrating consequences of policy choices, particularly for monetary policy and various fiscal policies.
- Dissemination efforts include courses designed for policymakers to improve uptake of model results.
Content in this bundle
- June 2019
- June 2020
- June 2021
- June 2022
- June 2023
- June 2024
- June 2025
- Call to Donors to Strengthen IMF Research Capacity for Low-Income Countries
- Macroeconomic Research in Low Income Countries — June 2013
- Macroeconomic Research in Low Income Countries — June 2014
- June2015
- Annual Review of the Macroeconomic Research in Low Income Countries project
- June2017
- MRLIC programme review — By March 2018
- List of Outputs: Year 1 to 13 (XLSX)
- Dec 2018, Vol.6
- Dec 2019, Vol.7
- Dec 2020, Vol.8
- Dec 2021, Vol.9
- Dec 2022, Vol.10
- Dec 2023, Vol.11
- Dec 2024, Vol.12
- Dec 2025, Vol.13
- Jun 2018, Vol.6
- Jun 2019, Vol.7
- Jun 2020, Vol.8
- Jun 2021, Vol.9
- Jun 2022, Vol.10
- Jun 2023, Vol.11
- Jun 2024, Vol.12
- Jun 2025, Vol.13 (PDF)
- Mar 2018, Vol.6
- Mar 2019, Vol.7
- Mar 2020, Vol.8
- Mar 2021, Vol.9
- Mar 2022, Vol.10
- Mar 2023, Vol.11
- Mar 2024, Vol.12 (PDF)
- Mar 2025, Vol.13
- Mar 2026, Vol.14
- Sep 2018, Vol.6
- Sep 2019, Vol.7
- Sep 2020, Vol.8
- Sep 2021, Vol.9
- Sep 2022, Vol.10
- Sep 2023, Vol.11
- Sep 2024, Vol.12
- Sep 2025, Vol.13 (PDF)
- Devarajan–O'Connell final report on the MRLIC project
- Macroeconomic Policy Frameworks for Resource-Rich Developing Countries (PDF)
- Conditionality in Evolving Monetary Policy Regimes (PDF)
- Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries (PDF)
- Public Investment, Growth, and Debt Sustainability: Putting together the Pieces (PDF)
References