Our IMEN Updates & Highlights 2026 #26

"This Bulletin assesses how the AI boom is shaping near-term macroeconomic dynamics and the attendant implications for monetary policy and financial stability. It documents four sets of findings. First, AI is driving a large investment and financing impulse: spending on data centres, semiconductors and related infrastructure has reached around 1% of GDP in the most exposed economies, and the associated capital expenditures increasingly rely on public debt markets as well as private credit. Second, these forces are reshaping trade and equity markets, generating sizeable terms-of-trade and wealth effects that differ markedly across countries. Third, the productivity payoff, though potentially large, remains uncertain and uneven and is accompanied by some early signs of labour market softening in the economies most exposed to AI. Finally, by moving demand and supply at the same time, AI blurs the cyclical signals on which central banks rely, thereby complicating monetary policy calibration."

"Over the course of three days—from August 13 to 15, 1971—at a secret meeting at Camp David, President Richard Nixon and his brain trust changed the course of history. Before that weekend, all national currencies were valued to the U.S. dollar, which was convertible to gold at a fixed rate. That system, established by the Bretton Woods Agreement at the end of World War II, was the foundation of the international monetary system that helped fuel the greatest expansion of middle-class prosperity the world has ever seen...In making his decision, Nixon shocked world leaders, bankers, investors, traders and everyone involved in global finance. Jeffrey E. Garten argues that many of the roots of America’s dramatic retrenchment in world affairs began with that momentous event that was an admission that America could no longer afford to uphold the global monetary system."

This paper develops "a framework to think about the role of tariffs and industrial policies in driving current account balances. Importantly, it lays out the conditions where these policies work to improve balances (often at the expense of output and consumption), and importantly, when they will fail and even generate the opposite effect. We analyze the role of tariffs as a tool to reduce current account deficits, and of industrial policy as a determinant of current account surpluses. We consider different forms of industrial policy in our analysis: a more traditional sector-specific policy of support via subsidies or other targeted instruments (micro industrial policy), and broader policies of support through macroeconomic policies targeting interest rates with induced effects on the exchange rate (macro industrial policy)."

"The Paris Club Dataset 1956–2026 provides structured, agreement‑level data on all known sovereign debt restructuring agreements negotiated through the Paris Club of official creditors between 1956 and April 2026, covering 543 agreements by 102 debtor countries and approximately USD $863 billion in treated debt. The dataset was constructed by systematically scraping and reverse‑engineering the Paris Club’s official website (

"Tariffs raise the prices of goods made at home, not just the imports they tax—an effect that standard pass-through estimates largely miss. Studying the 2025 U.S. tariffs, we find that about 26 percent of the tariff increase passes through to consumer prices. These estimates are measured relative to less-exposed goods and hold aggregate conditions fixed. The direct effect accounts for 64 percent of this increase, as tariffs raise the consumer prices of foreign varieties of a good. The remaining 36 percent arises indirectly—tariffs raise the cost of imported inputs used by U.S. producers, and domestic producers raise their markups because they face less competition from higher-priced imports. The direct effect passes through quickly, since tariffs raise import prices almost immediately, but the indirect effect takes nine to twelve months to work its way through supply chains. As a result, tariffs have a larger and more drawn-out impact on consumers than the direct effect alone would suggest."

"How does higher productivity affect inflation? Productivity shifts both supply and demand (through real incomes), and its effect on inflation depends on their relative magnitude and timing, as well as on the monetary policy response. We distinguish between a one-off level shock that temporarily increases productivity above trend and a persistent rise in productivity growth. A one-off, temporary increase in productivity lowers marginal costs and raises potential output, generating downward pressure on the price level. Once prices adjust however, inflation returns to target. By contrast, higher productivity growth raises expected permanent income and stimulates investment and consumption, increasing the natural real rate. Absent a tightening of monetary policy, inflationary pressures may emerge. Anticipation effects are central: if demand rises ahead of realised supply gains, inflation can increase despite higher productive capacity. In an open economy, the sectoral incidence of the shock also determines the impact on inflation. In summary, the inflationary consequences of productivity gains are a priori ambiguous and depend on the balance and timing of demand and supply responses, the composition of demand, and crucially, the monetary policy response."

"We examine the role of central bank reserves and public liquidity when secondary markets may freeze. Central bank reserves help intermediaries purchase assets during stress but crowd out investment. Under laissez-faire, intermediaries hold insufficient reserves, overlooking how aggregate liquidity reduces freeze risk. We propose a "market-backstop principle", akin to Bagehot’s principle for intermediaries. It combines state-contingent buyer-of-last-resort interventions to restore trading with modest liquidity requirements to limit moral hazard. The welfare benefits of restoring market functioning exceed the fiscal costs of interventions. We explore implications for the size and composition of central bank balance sheets."