This paper provides a nontechnical overview of the Global Economic Model (GEM), a new multicountry model based on strong microeconomic underpinnings developed in the Research Department of the International Monetary Fund.GEM was, above all, a collaborative effort. The idea came from then Economic Counsellor Kenneth Rogoff, and the main development was accomplished by Douglas Laxton of the IMF's Research Department, and Paolo Pesenti, who came to the Fund on a six-month assignment from the Federal Reserve Bank of New York. They were ably assisted by Susanna Mursula, also of the Research Department. Without the energy and drive of these three individuals the project would not have got off the ground. Since then, many others have also made important contributions to different aspects of the project that range from providing useful comments and helping to build the toolbox to support GEM development to using or extending the model to address real world policy issues. Principal among them have been Stéphane Adjemian,

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper extends a small linear model of the Israeli economy to allow for nonlinearities in the inflation-output process that arise from convexity in the Phillips curve and endogenous monetary policy credibility. We find that the dynamic responses to shocks in the extended model more closely resemble features in the data from the period 2001−03. In particular, the extended model does a much better job in accounting for the deterioration in monetary policy credibility and the output costs of regaining monetary policy credibility once it has been lost.

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This paper uses a two-country version of the global economy model to investigate some costs and benefits of a small, emerging economy's abandoning a flexible exchange rate regime in favor of adopting the currency of its main trading partner. The topic is particularly relevant for countries in central and eastern Europe, which recently joined the European Union and are now preparing to adopt the euro. We begin by evaluating macroeconomic performance in an inflation-targeting regime under various monetary policy rules. The results are then compared with the case where the small economy gives up its flexible exchange rate and joins the monetary union, under a number of alternative assumptions about the magnitude of shocks and structural rigidities. The analysis shows that although the monetary union has the benefit of eliminating exchange rate shocks, the loss of the buffering role of the exchange rate leads to greater volatility in domestic output and inflation. These costs are likely to decline over time, as markets become more competitive, flexible, and integrated in the monetary union. IMF Staff Papers (2008) 55, 339–355. doi:10.1057/imfsp.2008.9; published online 29 April 2008

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper provides a how-to guide to model-based forecasting and monetary policy analysis. It describes a simple structural model, along the lines of those in use in a number of central banks. This workhorse model consists of an aggregate demand (or IS) curve, a price-setting (or Phillips) curve, a version of the uncovered interest parity condition, and a monetary policy reaction function. The paper discusses how to parameterize the model and use it for forecasting and policy analysis, illustrating with an application to Canada. It also introduces a set of useful software tools for conducting a model-consistent forecast.