Can Raising Japan’s Minimum Wage Accelerate Wage Growth?

By Luc Everaert and Giovanni Ganelli

Version in 日本語 (Japanese)

Japan’s minimum wage is 798 JPY ($6.52) per hour, lower than many other advanced countries, including the United States, and among the lowest relative to the average wage (see chart). For a country that needs consumers to boost spending to pull the economy out of 15 years of deflation and reinvigorate growth, a hike in wages across the board can go a long way. (more…)

Redesigning Argentina’s Economic Landscape

By Roberto Cardarelli

Versions in Português (Portuguese), and Español (Spanish)

Most people know Argentina as the land of tango, Malbec, and some of the greatest soccer players of all times. But Argentina is also famous for being home to some of the most diverse and extreme landscapes of the world—from subtropical rainforests and Iguazu Falls in the north to the glaciers of Perito Moreno in the south, and from the lowest site in South America (Laguna del Carbón) to the highest elevation in the Americas (Aconcagua mountain).

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Strengthening Canada’s Economic Toolkit: Improving the Inflation Targeting Framework

By Maurice Obstfeld, Douglas Laxton, Yulia Ustyugova, and Hou Wang

For the past 25 years, Canada’s monetary policy framework has been working well. Headline inflation averaged 1.9 percent, 1994–2015, and long-term inflation expectations have been very well anchored to the 2 percent target (Chart 1).

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Learning to Adjust: The Effects of Currency Depreciations on Inflation in Latin America

By Yan Carrière-Swallow and Bertrand Gruss

(Versions in Español and Português)

Falling global commodity prices and the normalization of monetary policy in the United States have contributed to widespread currency depreciations in Latin America. In theory, a falling currency is expected to create inflation by driving up the price of imported goods and services—triggering what economists call exchange rate pass-through.

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Policy Interest Rates in Latin America: Moving to Neutral?

Using our estimated neutral interest rates we find that current policy rates are close to their neutral level in several countries (Chile, Colombia, and Peru). For Brazil and Mexico we find that monetary policies remain stimulative (with actual interest rates below neutral). For other countries in the region our analysis suggests that Costa Rica, the Dominican Republic, Guatemala, Paraguay, and Uruguay have lower interest rates than their neutral level. However, these results should be viewed with caution given data limitations and weaker monetary policy transmissions.

The Case for a Managed Float under Inflation Targeting

It is often claimed that inflation targeting , to be successful, needs to include a high degree of exchange rate flexibility, with the policy rate geared to stabilizing inflation and the exchange rate allowed to fluctuate freely. But a new paper from the IMF examines the case for using two policy instruments—the policy interest rate and sterilized foreign exchange market intervention—in emerging market countries aiming to maintain low inflation while avoiding the damage that large and abrupt currency movements may engender. It argues that in a world of volatile capital movements, and sharp ups and downs in exchange rates, there are important benefits to making use of all available policy instruments, both from a single country’s perspective, and from a global standpoint. Provided policymakers are clear about their objectives, there is no conflict between an inflation targeting framework and making use of the foreign exchange market intervention instrument to attenuate deviations of exchange rates.

The Future of Macroeconomic Policy: Nine Tentative Conclusions

The global economic crisis taught us to question our most cherished beliefs about the way we conduct macroeconomic policy. Earlier I had put forward some ideas to help guide conversations as we reexamine these beliefs. I was heartened by the wide online debate and the excellent discussions at a conference on post-crisis macroeconomic policy here in Washington last week. At the end of the conference, I organized my concluding thoughts around nine points. Let me go through them and see whether you agree or not.

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