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.

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).

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).

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.

Policy Interest Rates in Latin America: Moving to Neutral?

By Nicolas Magud and Evridiki Tsounta 

(Version in Español)

Many Latin American countries have strengthened their monetary policy frameworks in recent years to keep the rate of inflation in check. Some of them have adopted an inflation target and use the policy interest rate as the main tool to achieve that target.

But how do central bankers know whether monetary policy is expansionary or contractionary? Policymakers would need to know how the current policy rate compares to a benchmark or neutral rate.

The neutral interest rate is the real interest rate consistent with the economy operating at full employment and stable inflation. If the economy is operating above its potential capacity and inflation is rising, policymakers should increase the policy interest rate above the neutral level to cool down the economy. Conversely, if the economy is operating below its full employment level, interest rates may need to be lowered below the neutral level.

The Case for a Managed Float under Inflation Targeting

By Jonathan D. Ostry

(Version in Español)

The global financial crisis has reminded emerging market economies, if they needed reminding, that capital flows can be highly volatile and that crises need not be home grown.

Emerging markets have been affected in a variety of ways, not least by the sharp ups and downs in exchange rates that volatile capital flows engender.

These ups and downs may be less benign in emerging markets than they might be in advanced economies for a number of reasons.

• First, emerging markets may have more fragile balance sheets—essentially they are less well hedged against currency risk—so depreciations may engender financial distress and even bankruptcies and adverse effects on economic activity.
• Second, they may be less flexible, so that when the exchange rate strengthens and the traded goods sector loses competitiveness, this may have permanent effects on the economy even if the exchange rate later reverts to its initial level.

The Future of Macroeconomic Policy: Nine Tentative Conclusions

By Olivier Blanchard

(Version in Français, Español)

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.