Your IMF Update: IMF Working Papers

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IMF Working Papers Open in your browser IMF Working Papers : Systemic Banking Crises Database: 1970-2025 May 15, 2026 This paper presents an updated version of the Laeven and Valencia (2013, 2020) database on systemic banking crises, extending the coverage through 2025. The update incorporates new episodes, while maintaining the definition established in previous editions, which emphasizes both significant signs of financial distress and substantial policy interventions. The update integrates textual tools to screen potential candidates that are then further scrutinized to confirm if our definition is met. The database includes information on banking crises episodes during 1970-2025, including starting dates, policy responses, fiscal costs, and output losses. It offers a comprehensive tool for assessing cross-country vulnerabilities and policies to resolve banking crises. READ MORE YOU MAY ALSO BE INTERESTED IN: COUNTRY INFO IMF VIDEOS DATA TOOL NEWS AND INTERVIEWS IMF BLOG F&D MAGAZINE EVENTS PODCASTS NEWSLETTER FOLLOW US ON: This email has been sent to theworldbanka...@googlegroups.com Make changes to your subscription, unsubscribe or add more items here.

[International Monetary Fund]

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IMF Working Papers : The Central Bank’s Dilemma: Look Through Supply Shocks or Control Inflation Expectations? May 15, 2026 When countries are hit by supply shocks, central banks often face the dilemma of either looking through such shocks or reacting to them to ensure that inflation expectations remain anchored. In this paper, we propose a tractable framework to capture this dilemma and explore optimal policy under various assumptions on how agents form their expectations and the sophistication with which those expectations account for the central bank’s announced policies. While our analysis covers a wide range of potential specifications, our baseline results focus on level-k thinking (LKT) – a form of bounded rationality that enjoys significant support in the experimental literature and encompasses both adaptive expectations (AE) and rational expectations (RE) as special cases. Nonetheless, we show that the optimal policy under LKT is qualitatively very different from its analogues under AE and RE, exhibiting abrupt pivots in the policy stance. In particular, it is optimal for the central bank to initially look through supply shocks until a threshold is reached, then pivot discontinuously to a more hawkish anti-inflationary stance. We find that such pivots can, if optimally executed, be compatible with soft landings in the sense that most (or even all) of the reduction in inflation occurs through re-anchoring of expectations rather than economic slack. We also discuss risks and why policy errors in terms of tightening too late or too slowly can be especially costly in such an environment. READ MORE

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IMF Working Papers : When Policy Bites: State-Dependent Monetary Policy Transmission in Emerging Markets May 15, 2026 We document the state-dependence of monetary policy transmission to output and core consumer prices in a sample of eleven large inflation-targeting emerging markets along three cyclical dimensions: the business cycle position, the monetary policy stance, and the level of trend inflation. We show that monetary policy has strong effects on output during recessions and after a period of loose monetary policy, but little to no impact during expansions or when monetary policy has been tight. In contrast, the response of prices is muted regardless of business cycle position or monetary policy stance. Transmission also depends on trend inflation: when trend inflation is low, monetary policy has a stronger impact on output and a weaker effect on prices, whereas a high-inflation environment dampens the output response and amplifies price adjustments. These findings are broadly consistent with the presence of financial frictions in the form of occasionally binding borrowing constraints, endogenous frequency of price adjustments, loss aversion preferences, and a convex Phillips Curve. READ MORE

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IMF Working Papers : Mind the Gaps: Caribbean Trade Patterns and the Connectivity Constraint May 15, 2026 This paper analyzes trade patterns across the Caribbean Community (CARICOM)—15 Caribbean countries—and makes three main contributions. First, it provides a unified empirical assessment of Caribbean external connectivity by jointly analyzing goods trade, tourism flows, and cross-border banking linkages within a consistent gravity-model framework. Second, it presents new evidence on the role of physical connectivity—shipping and air transport—in shaping both import source concentration and tourism inflows, drawing on granular bilateral trade, tourism, and flight capacity data. Third, it shows that, while financial connectivity matters in a global context, it is not the primary binding constraint for Caribbean economies; instead, limited physical connectivity emerges as the more decisive factor shaping trade patterns and external vulnerabilities. READ MORE

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IMF Working Papers : One Global Shock, Many Inflation Paths: Explaining Post-COVID Inflation Divergence May 22, 2026 This paper investigates why the post-COVID inflation surge, though globally synchronized, led to widely divergent outcomes across countries. Using cross-country regressions for 130 economies and local projections methods for 70 advanced and emerging markets, we analyze the structural, institutional, and policy determinants of post-pandemic inflation dynamics. The results indicate that historical inflation and the scale of domestic energy price shocks account for most of the cross-country variation in cumulative post-COVID inflation. In contrast, many frequently cited country-specific, macroeconomic fundamentals and institutional features exhibit limited power to explain cross-country variation. The association between post-COVID inflation and domestic policy responses is also weak, although endogeneity complicates a clear causal interpretation. The analysis further reveals that pass-through from energy prices to headline inflation intensified markedly in the post-COVID period, particularly in emerging markets, in non-inflation-targeting regimes, and in countries that did not expand fossil fuel subsidies. These findings highlight the asymmetric transmission of supply shocks and underscore the importance of credibility, historical inflation experience, and energy policy design in shaping inflation persistence. Strengthening central bank credibility and anchoring expectations may be essential to bolster resilience against future global supply disruptions. READ MORE

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IMF Working Papers : Monetary Policy Transmission in Sub-Saharan Africa: Evidence from Emerging and Frontier Markets May 22, 2026 This paper empirically reassesses monetary policy transmission in emerging and frontier market economies in Sub-Saharan Africa (SSA EFMs). Using the identification approach of Romer and Romer (2004), we construct measures of monetary policy shocks and provide evidence on transmission mechanisms in the region. We show that monetary policy shocks pass through quickly to short-term market interest rates and lead to persistent increases in bank deposit and lending rates in most economies, indicating an operative bank-based interest rate channel. By contrast, exchange rates generally do not appreciate and, in many cases, depreciate following monetary tightening, consistent with the exchange rate puzzle—suggesting that interest rate hikes alone may be insufficient to systematically influence exchange rate movements. We also find that contractionary monetary policy reduces both output and inflation, with effects that are modest and notably weaker than in more developed economies. In addition, we find that transmission is stronger in economies that have adopted, or are transitioning toward, inflation-targeting regimes. Finally, we show that cross-country heterogeneity in transmission largely reflects differences in monetary policy transparency, financial development, and, to a lesser extent, fiscal dominance. READ MORE

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IMF Working Papers : A New Wave of Industrial Policy in Asia-Pacific: Could Resurgence lead to Structural Transformation? May 22, 2026 This paper provides a first comprehensive assessment of industrial policy (IP) across Asia‑Pacific and its potential to enable structural transformation. Building an IP database for 2009–2024, paired with a rich dataset, the paper documents a large wave of IP interventions. Subsidies dominate, followed by import-limiting measures. Novel applications of machine‑learning and clustering approaches to assess IP targeting suggest that, ex-ante, about three-quarters of IP could align with structural transformation strategies, including relatively safe (“safe-bets”) and risky (“moonshots”) strategies promoting technological upgrading and diversification, and strategies to alleviate market‑frictions and distortions in key sectoral nodes. IP’s ex-post linkages to trade, competitiveness, and domestic firms’ indicators are small and short‑lived; sustained gains that could lead into structural transformation appear only sporadically. Our findings underscore the need for a more parsimonious and carefully‑designed IP—anchored to targeting clear market‑failure rationales and complemented by ambitious structural reforms—potentially enhancing effectiveness and lowering net costs. READ MORE

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IMF Working Papers : Robust Inference Via Heteroskedasticity in Linear Models May 22, 2026 We study inference via heteroskedasticity in linear models commonly used for macroeconomic policy analysis, where covariate endogeneity must often be addressed with limited time and data. Our framework nests standard heteroskedasticity-based approaches, allows for new non-nested restrictions, and does not require ex-ante regime labelling. We propose an easily implementable weak-identification-robust test and derive sufficient conditions for its validity. Simulation results show good size and power properties in a wide range of settings. Empirical applications to the fuel-price passthrough in Sierra Leone, the effect of remittances on consumption in the Philippines, and exchange-rate passthroughs in many countries illustrate the versatility and scalability of our approach. READ MORE

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IMF Working Papers : Class Discipline, Class Size and Scholastic Achievement Across Countries: A Theoretical and Empirical View of Educational Production May 29, 2026 Formulating an education production function and using estimates of student and class discipline levels, this paper seeks to identify the relations between discipline, class size, teaching quality and scholastic outcomes. The data shows both individual and class-level discipline to be a powerful predictor of the PISA math score, while variance in discipline among classmates has a strongly negative effect. Furthermore, class discipline is correlated with larger classes. As a structural simulation demonstrates, the correlations observed in the data can be well explained by how schools allocate students and teachers to classes. This analysis allows for a break-down of the contribution of educational production factors and highlights the role of individual and class discipline to student achievements. READ MORE

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IMF Working Papers : Political Fragility: The Economic Impact of Coups d’État June 5, 2026 This study uses an entropy balancing model to show that coups d’état can reduce GDP growth by around 2.3 percentage points in the same year. This is a larger effect than some previous estimates, and is found to be persistent over time, reducing cumulative GDP growth by around five percentage points over the following five years. This study goes deeper than previous research into the drivers of that impact, finding that economic sanctions are an an important reason for the observed lower growth in many cases and that the principal channel is via private consumption and investment. READ MORE

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IMF Working Papers : Peer Pressure: How Relative Debt Drives Emerging Market Sovereign Spreads June 5, 2026 This paper shows that sovereign bond spreads are shaped not only by absolute debt levels but also by a country’s relative debt position within its peer group. Using panel fixed effects for over 80 emerging and developing economies over 1993-2024, we find that relative debt—especially benchmarked by income and commodity status—has greater explanatory power for spreads than gross debt alone. A one–standard deviation increase in relative debt raises spreads by roughly 0.2–0.3 standard deviations, comparable in magnitude to global risk indicators. Similarly, a 10 percent increase in relative debt is associated with a 3.8 percent increase in sovereign spreads, all else equal. The effect of relative debt is state-dependent, being stronger in countries with better institutions, access to concessional lending, and during periods of low risk aversion and ample global liquidity. These results hold across alternative specifications, sample periods, methodologies, and controls, which underscores the comparative nature of investor assessments and the importance of benchmarking for fiscal policy, debt management, and international surveillance. READ MORE

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IMF Working Papers : There Will Be Liquidity! But Will There Be Transmission? June 5, 2026 This paper examines the impact of voluntary and involuntary excess liquidity on monetary policy effectiveness and inflation in Kazakhstan. Consistent with first-principles predictions, we find that voluntary liquidity held for precautionary motives is (i) negatively related to the opportunity cost of holding liquid assets and to the level of mandatory reserve requirements; (ii) positively related to average liquidity outflows, proxied by transactional demand for cash; and (iii) ambiguously affected by the magnitude and volatility of the business cycle. We further show that higher voluntary liquidity weakens monetary policy transmission and increases exchange rate pass-through to inflation. In contrast, involuntary liquidity hampers monetary policy effectiveness no matter its level and it increases average inflation primarily through its influence on the formation of inflation expectations. Overall, the results suggest that reforms aimed at reducing both forms of liquidity would enhance monetary policy effectiveness and, ceteris paribus, reduce inflation. READ MORE

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IMF Working Papers : Leveraging Non-traditional Data for Macroeconomic Nowcasting: The Case of Morocco June 5, 2026 Making informed policy decisions is contingent upon the availability of reliable and timely data. The use of non-traditional data has been shown to be a powerful tool in allowing policymakers to achieve robust nowcasting—the practice of estimating the current period’s economic indicator(s), ahead of official releases, using a wide range of macroeconomic and high-frequency data. This paper showcases how different types of non-traditional data, such as indices extracted from satellite imagery, Google Trends, and flight tracking information, can be leveraged to complement official statistics and monitor economic activity, and how these timely signals can be incorporated into nowcasting models to provide early estimates of key macroeconomic variables in Morocco. The approach is applied to agricultural gross value added, tourism revenues, and the unemployment rate. The results demonstrate that non-traditional data substantially improves nowcasting models by enhancing predictive accuracy and enabling the rapid generation of nowcast estimates prior to the release of official data. READ MORE

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IMF Working Papers : Nowcasting Low-Income Countries Through Global Linkages June 5, 2026 Timely assessment of economic activity is crucial for effective policymaking at the national, regional, and global levels. However, many economies still do not publish GDP data at a quarterly basis, creating persistent information gaps. In 2025, 34% of economies publish only annual GDP statistics. This lack of higher-frequency and timely data is particularly restrictive for emerging market and developing economies, where economic volatility and spillover risks are often highest. The problem is more severe for historical data: only 42% of economies have quarterly GDP estimates for a period longer than 20 years. To address these gaps, this paper develops a model that estimates missing quarterly GDP series by leveraging global and regional economic interconnections. The method transforms sparse annual data into quarterly estimates by exploiting higher-frequency information from the rest of the world, enabling real-time policymaking in both data-scarce economies and in global-level discussions. Moreover, this method ensures internally consistent estimates of regional and global economic activity, allowing both top-down and bottom-up scenario analyses. READ MORE

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IMF Working Papers : The Growth Effects of Natural Disasters: Evidence From A Novel Global Dataset Over 1970-2023 June 5, 2026 We construct standardized climate anomalies from daily observations and carefully calibrate physical thresholds to identify storms, floods, droughts, heatwaves, and cold snaps across 196 countries over the period 1970–2023. Using a local projections framework, we estimate the contemporaneous and 2-year effects of each disaster type and collectively on real GDP growth. We find that storms, floods, droughts, and heatwaves significantly reduce growth on impact (by roughly 0.1–0.2 percentage points on average), with the largest effects observed in emerging markets and developing economies. Cold spells have no statistically significant impacts. Our estimations also indicate that the initial drop in GDP growth is often not fully offset by a quick rebound, leaving GDP below the pre-disaster trend in the subsequent two years. Severe disasters impose far larger costs. Catastrophic floods can lower growth by up to 3 percentage points (with once-in-100-year storms or heatwaves reducing growth by ~0.5pp and extreme droughts by ~1pp). By combining the estimated global coefficients with each country’s own disaster intensity, we translate the aggregate results into localized growth effects and cross-check them against estimates from a dynamic heterogenous panel model. Finally, rolling-window estimates indicate that the contemporaneous growth impact of storms and heatwaves has attenuated in recent decades, whereas droughts have become increasingly damaging, reflecting divergent adaptation or even maladaptation and vulnerability trends over time. READ MORE

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IMF Working Papers : The EU’s Recovery and Resilience Facility: Experience and Lessons for the Next Multiannual Financial Framework June 5, 2026 This paper takes stock of the Resilience and Recovery Facility (RRF)’s economic impact as implementation enters its final phase and draws lessons for the design of the next EU Multiannual Financial Framework (MFF). Using sectoral and cross‑country data, the paper finds that the RRF provided a short term demand boost, supporting employment and output growth—especially in countries with large allocations—while a substantial share of its growth impact is expected to materialize as absorption accelerates. Unprecedented joint EU level borrowing is found to have contributed to stabilizing sovereign debt markets and improving prospects for EU bonds as safe assets. Finally, the RRF’s performance based conditionality through improved national ownership has supported reform implementation in some member states. At the same time, challenges around the pace of funds absorption remain as implementation is still ramping up and the overall macroeconomic impact will ultimately depend on how effectively the RRF funds are utilized. Plan overambition and complexity, administrative capacity limits, and absorption bottlenecks have slowed disbursement in several member states, while the predominance of output based milestones and targets has limited the framework’s focus on results. READ MORE

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IMF Working Papers : The Sovereign-Bank Nexus in Emerging Markets and Developing Economies: Trends, Determinants, and Macrofinancial Implications June 5, 2026 As public debt in emerging markets (EMs) and low-income countries (LICs) has surged since the COVID-19 pandemic, so has the exposure of domestic banks to their sovereigns—raising concerns of destabilizing feedback loops if fiscal conditions deteriorate. This paper provides a comprehensive analysis of this sovereign-bank nexus using a new granular dataset covering over 120 EMs and LICs, combined with IMF Financial Soundness Indicators. We document a marked post-pandemic strengthening of the nexus, particularly in Sub-Saharan Africa and the Middle East and Central Asia, and show that public debt levels, deposit rates, and nonperforming loans are its most robust correlates. While we find no broad evidence of financial repression, higher sovereign refinancing needs significantly increase banks' government debt holdings in countries with substantial state-owned bank presence. Sensitivity analysis illustrates that the consequences of a strong nexus can be severe: even a moderate domestic debt restructuring could render several banking systems undercapitalized, underscoring that high reported capital ratios in strong-nexus countries may provide a false sense of security. READ MORE

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IMF Working Papers : Targeting State Aid: Firm-level Evidence from France June 12, 2026 This paper examines the firm-level impact of state aid in France from 2016–23 and how targeting affects economic outcomes. Using firm-level data and a difference-in-differences approach, we find that aid is most effective for young firms, improving real outcomes while also crowding in private debt financing. Size-based targeting, by contrast, has limited impact. R&D support is particularly effective for young firms in high-tech sectors, and energy aid has the strongest effects in manufacturing, pointing to its potential role in helping firms reduce emissions and facilitating the green transition. READ MORE

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IMF Working Papers : HANK-Based Fiscal Consolidation for a High-Debt Advanced Euro Area Economy June 12, 2026 High-debt euro area economies face fiscal consolidation in a low-growth environment. We use a Heterogeneous Agent New Keynesian model to assess how consolidation composition shapes aggregate and distributional outcomes in a representative high-debt economy. The status quo is not neutral: delay generates its own costs through lower investment, higher debt service, and damage to constrained households. For a given fiscal effort, expenditure-based consolidation achieves faster debt reduction with lower growth and distributional costs than revenue-based consolidation. As a complementary exercise, pairing the expenditurebased path with growth-enhancing structural reforms further improves outcomes by lifting real wages, a channel that disproportionately benefits hand-to-mouth households. Across both strategies, modest well targeted transfers to low-income households can substantially mitigate distributional costs at minimal fiscal expense while supporting aggregate demand. READ MORE

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IMF Working Papers : Wage Dynamics in Europe: Drivers, Institutional Amplifiers, and Policy Spillovers June 12, 2026 This paper examines the drivers of wage growth in Europe and assesses whether the 2022–23 inflation surge has altered wage-setting dynamics, using cross-country macro evidence for 26 European economies, agreement-level collective bargaining data for Spain, and estimates of minimum and public sector wage spillovers. We find that the slope of the wage Phillips curve has not materially changed since the pandemic—labor market slack continues exerting a restraining influence on wage growth. However, postpandemic wage growth was higher than predicted by historical relationships, reflecting the outsized inflation shock and a higher sensitivity of wages to past inflation. Wage-setting is found to differ markedly across regions. In Central, Eastern, and Southeastern European Economies (CESEE), wage formation remains more backward-looking, with past inflation playing a dominant role, whereas in Advanced Economies (AEs) inflation expectations are more important. In AEs, the recent wage response followed a sequential pattern: the wage drift rose early as employers granted ad hoc increases, while negotiated wages adjusted with a lag as collective agreements were renewed and workers recouped accumulated real wage losses. Micro evidence from Spain shows that institutional features of collective bargaining conditionally amplify inflation pass-through: CPI indexation clauses, sector-level bargaining, and shorter contract duration are each associated with stronger wage responses to past inflation. In parallel, minimum wage pass-through has strengthened markedly in CESEE since 2015, while public sector wages dampened aggregate wage growth in AEs but amplified it in CESEE during 2022–24. Taken together, these findings suggest that while the core Phillips curve mechanism remains intact, future inflation shocks could generate more persistent wage pressures where wage-setting is more backward-looking, inflation compensation becomes institutionalized (including through indexation that interacts with downward nominal rigidity), or discretionary minimum and public sector wage policies add impetus. READ MORE

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IMF Working Papers : Central Clearing for Government Securities Repos: A CCP-Centric Perspective June 12, 2026 Government securities-backed repo markets constitute a key funding source for market participants in many jurisdictions. A number of recent stress episodes, e.g., in US and UK repo markets, has led to renewed efforts to strengthen the resilience of repo markets. This notably includes a push to increased central clearing via central counterparties (CCPs) which may come via market incentives or in the form of mandatory clearing. Central clearing is commonly considered as a key tool to increase transparency and understanding of markets and improve the risk management practices of market participants. This paper provides a brief overview of post trade-arrangements in select government securities repo markets and offers a structured analysis of potential benefits and risks of bringing repo markets onto centrally cleared platforms from a CCP perspective. The paper lists a set of key considerations that CCPs—and indirectly—policy makers could take into account when exploring the expansion of repo clearing services or opting for a repo clearing mandate. Aside from considerations pertaining to access modalities to repo clearing services, default management and market structure-related aspects are of key importance. Together, these factors ensure that the transition of repo transactions from a decentralized, uncleared set-up to central clearing is conducive to more resilient repo and ultimately government bond markets. READ MORE

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IMF Working Papers : ASEAN’s Trade and Investment in a Fragmented World June 12, 2026 This paper examines the short- and medium-term effects of the 2018–19 China-U.S. tariff increases on the trade and investment flows of ASEAN member economies. Using granular trade data, we demonstrate that several ASEAN countries experienced a disproportionate growth in exports of products that were targeted by these tariffs. To further explore the dynamic and often immediate responses of international capital flows to these trade policy shifts, we leverage a novel firm-level FDI database that allows us to identify surges in sectoral investment inflows. Among ASEAN countries, Vietnam stands out as the one where FDI in targeted sectors grew notably faster during 2018–19, likely contributing to its observed export gains over the medium term. At the same time, our analysis reveals that trade gains in targeted products have not universally translated into stronger overall export performance across ASEAN. More generally, while trade reallocation may yield short- and medium-term gains, these gains can be offset over time by the higher long-term aggregate losses associated with trade fragmentation. READ MORE

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IMF Working Papers : Decoding Fiscal Messaging: How G7 Finance Ministries Communicate June 12, 2026 Fiscal policy has re-emerged as a central tool of macroeconomic stabilization, yet the way governments communicate fiscal choices remains poorly understood. This paper provides the first systematic analysis of fiscal communication across the G7 from 2000–2024. Using a new dataset of budget documents, ministerial speeches, and press communiqués, we examine the clarity, thematic content, and rhetorical tone of official fiscal statements through computational text-analysis methods. We uncover a structured but fragmented communication architecture. Technical documents emphasize sustainability and constraints; speeches underscore growth, fairness, and investment; and press releases distill policy packages into succinct signals. Despite rising expectations of transparency, fiscal language remains complex and often optimistically framed. These patterns reflect institutional design, political incentives, and macroeconomic conditions. Our findings highlight fiscal communication as an underappreciated dimension of economic governance, one that shapes expectations, conditions credibility, and warrants deeper integration into fiscal policy analysis. READ MORE

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IMF Working Papers : Innovation, Human Capital, and Taxation: Evidence from a Structural Model of the Canadian Economy June 12, 2026 Canada’s innovation performance has been strong but shows limited upward momentum despite generous research and development (R&D) subsidies. This paper develops an endogenous innovation, multisector, heterogeneous-agent model calibrated to the Canadian economy to evaluate fiscal policies that promote innovation and growth. The impact of R&D subsidies depends critically on the supply of high-skilled labor. When the supply of scientists is inelastic, subsidies raise research wages, crowd out private R&D, and can reduce long-run growth. When labor supply is more elastic, subsidies generate substantial gains in innovation and output. The analysis also compares alternative policy instruments. Investment tax reductions and education spending foster innovation through capital deepening and an expanded supply of highskilled labor, delivering more robust gains when talent constraints bind, while personal income tax changes have more limited effects. R&D subsidies also increase inequality by disproportionately benefiting high-skilled workers, although these effects are mitigated when labor supply responds. Overall, effective innovation policy requires combining R&D incentives with policies that expand human capital and reduce distortions to investment. READ MORE

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IMF Working Papers : Barriers to a European Banking Union June 12, 2026 We quantify barriers to cross-border banking within the euro area and their consequences for credit allocation and output. Using loan-level data from the European credit registry (AnaCredit) and group structures (RIAD), we estimate barriers to relationship formation, loan pricing, and banks’ branching decisions at the country-pair level. We find that barriers to cross-border relationships between banks and firms and cross-border bank entry are large while wedges on interest rates and loan quantities are comparatively small. The estimated edges are strongly associated with differences in national banking regulations, measured using a novel dataset on regulatory distances. We embed our estimates into a quantitative spatial general equilibrium model with heterogeneous banks and firms subject to cross-border frictions in relationship formation, loan pricing, and bank entry. Partially relaxing frictions predicts sizable and heterogeneous output gains across euro area countries. These gains are primarily driven by increases in capital and labor rather than improvements in allocative efficiency. READ MORE