Course Structure and Standard Syllabus

Course Topic: General Macroeconomic Analysis

Course Title: Macroeconomic Diagnostics (MDS)

Objectives
This two-week course is designed to strengthen participants’ ability to comprehensively
assess a country’s macroeconomic situation, including the current state of the economy; the
stance of fiscal and monetary policy; financial stability; exchange rate misalignments;
vulnerabilities in the different sectors; and the medium-term outlook, especially the
sustainability of public and external debt. The course emphasizes practical tools for use in
day-to-day macroeconomic analysis. It relies on case studies relevant to the region where the
course is given to illustrate how these tools are applied and how they can contribute to the
policymaking process.

Topics (Core Units)

0. Overview
C1. Case Study and Group Project
1. Macroeconomic Framework
2. Analyzing Supply and Productivity – Tools
3. Supply and Productivity – Growth Diagnostics and Structural Reform
4. Analyzing Aggregate Demand
5. Analyzing Inflation
6. Assessing Monetary Policy
7. Assessing Macro-Financial Linkages
8. Assessing Fiscal Policy
9. Assessing Fiscal Sustainability
10. Assessing the External Position
11. Assessing Competitiveness and the Exchange Rate
12. Assessing External Debt Sustainability and Foreign Reserve Adequacy
13. Assessing Risks
14. Course Wrap-Up
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Target Audience
Mid-to-senior level officials in central banks and ministries of finance or economy who are
involved in diagnosing the state of the macro-economy and making projections.
Prerequisites
Participants should have an advanced degree in economics or equivalent experience, good
quantitative skills, and proficiency in the use of Excel. It is highly recommended that
applicants complete the online FPP.1x and FPP.2x courses and/or the face-to-face FPP
course before enrolling in the face-to-face MDS or the online MDSx.
Performance Evaluation
A multiple-choice test will be administered at the beginning and the end of the course to
assess participants’ knowledge and the course’s learning impact.
Learning objectives
Upon completion of the course, participants should be able to:
• Analyze potential output and calculate output gaps, and diagnose the outlook for the
economy;
• Assess the stance of current fiscal, monetary & exchange rate, and financial policies;
• Assess macro-financial linkages, including through the analysis of financial sector
soundness indicators;
• Assess the medium-term prospects of the economy, especially the sustainability of
public and external debt, and identify impediments to long-term growth;
• Identify possible external and internal economic risks and vulnerabilities to economic
growth and identify policies to address them.
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MDS PROGRAM OUTLINE

UNIT 0: INTRODUCTORY LECTURE: COURSE OVERVIEW

Lecture 0 (0.5 hours)
 Set out objectives of course
o Emphasize course focus is on diagnostic tools
 Provide an outline of the course
 Describe role of participant and counselor

C1. CASE STUDY INTRODUCTION

Lecture C1 (1.5 hours)
 Introduce case study exercise
 Highlight economic and political background
 Describe recent reforms and outline current government’s objectives
 Describe final workshop project

UNIT 1: MACROECONOMIC FRAMEWORK

Lecture 1 (1.5 hours)
 Describes macroeconomic stability and financial stability
 Presents the macroeconomic framework
 Introduces selected indicators table and flow of funds tables

Workshop 1 (1.5 hours)

Objective: Examine the interrelationship among macroeconomic accounts and learn to
interpret selected indicators table.
Activity: Case Study Workshop – based on country case study using actual AIV report from
financial surveillance pilot group: (1) reviews a selected indicators table; (2) examines the
interrelationship among the macroeconomic accounts; (3) assesses areas of possible
vulnerabilities

References
1. IMF Institute, 2013, “The Baseline Scenario” Chapter 7 in Financial Programming and
Policies, (unpublished; Washington: IMF).
2. Article IV Staff Report of Selected Country Case Study.
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Online material
Link to online learning module: FPP1x (Module on interrelationships among macroeconomic
accounts)

UNIT 2: SUPPLY AND PRODUCTIVITY

Lecture 2: Tools (1.5 hours)
 Review measurement of GDP
 Define potential output and output gaps
 Introduce time series methods to measure potential output
Workshop 2 (1.5 hours)
Objective: Implement methods to estimate potential output
Activity: The workshop estimates potential output and output gaps using a variety of methods
for case study country.

Lecture 3: Growth Diagnostics and Structural Reform (1.5 hours)

 Introduce growth accounting
 Discuss production function approach to estimate potential output
 Describe growth diagnostics and discuss structural structural reforms
o Labor markets and unemployment

Workshop 3 (1.5 hours)

Objective: Diagnose case study country’s growth prospects
Activity: The workshop (1) assesses the supply conditions; (2) analyses the Solow growth
model; (3) examines impediments to economic growth.

References
1. Abiad, Abdul, John Bluedorn, Jaime Guajardo, and Petia Topalova (2014), “Resilience in
Emerging Market and Developing Economies: Will It Last? World Economic Outlook –
Chapter 4, pp 129-71 (Washington: October).

2. Dabla-Norris, Era, Giang Ho, and Annette Kyobo (2016), “Structural Reforms and
Productivity Growth in Emerging Market and Developing Economies” IMF Working
Paper 16/15.

3. IMF (2016), IMF Staff Note for the G20-A Guiding Framewok for Structural Reforms

4. Sutherland, Douglas and Peter Hoeller (2014): “Growth Policies and Macroeconomic
Stability”, OECD Economic Policy Paper, February 2014, N.08.
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5. Svirydzenka Katsiaryna and Martin Petri (2014): “Mauritius: The Drivers of Growth—
Can the Past be Extended?” IMF Working Paper 14/134.
Online material
Link to online learning module: Estimation of Output Gaps

UNIT 3: ANALYZING AGGREGATE DEMAND

Lecture 4 (1.5 hours)
 Review expenditure decomposition of growth
 Analyze major components of aggregate demand
 Describe the use of business cycles and short-term indicators to understand short-term
fluctuations
Workshop 4 (1.5 hours)
Objective: Calculate the contributions and use of high frequency indicators to help assess
short run fluctuations.
Activity: The workshop (1) identifies the relative contributions to GDP growth of external
and domestic demand; (2) analyses trends in private consumption and investment, including
high frequency indicators.
References
1. Ghazanchyan, Manuk and Janet Stotsky (2013): “Drivers of Growth: Evidence from Sub-
Saharan African Countries”, IMF Working Paper 13/236.
2. Lebrun, Igor and Esther Pérez Ruiz (2014): “Demand Patterns in France, Germany, and
Belgium: Can We Explain the Differences?” IMF Working Paper 14/165.

UNIT 4: ANALYZING INFLATION

Lecture 5 (1.5 hours)
 Review of inflation around world and region
 Discuss cost of excessively high/low inflation
 Describe the measurement of inflation, including headline and core inflation
 Introduce the Phillips curve and determinants of inflation
Workshop 5 (1.5 hours)
Objective: Measure inflation, calculate the Phillips curve, and assess inflation determinants
Activity: The workshop (1) calculates headline, core, and trend inflation; (2) analyzes
components of inflation and their contributions; (3) reviews recent developments in inflation
in region; (4) examines inflation determinants on both supply/demand side.
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References
1. Gordon, Robert, 2011, “The History of the Phillips Curve: Consensus and
Bifurcation” Economica, Volume 78, Issue 309, pp 10-50.

2. Hoover, Kevin, 2008 “Phillips Curve,” in The Concise Encyclopedia of Economics,

an easy-to-read introduction to the Phillips Curve

3. International Monetary Fund, 2013, The Dog that Did not Bark: Has Inflation Been
Muzzled or Was it just Sleeping,” World Economic Outlook, Chapter 3, pp. 79-96
(Washington: April).

4. Lansing, Kevin, 2015, “Assessing the Recent Behavior of Inflation,” Federal Reserve
Bank of San Francisco Economic Letter, No 2014-24.

5. Wu, Tao, 2003, “Improving the Way We Measure Consumer Prices,” Federal
Reserve Bank of San Francisco Economic Letter, No. 2003-24.

UNIT 5: ASSESSING MONETARY POLICY

Lecture 6 (1.5 hours)
 Describe monetary policy frameworks
o Objectives and the fundamental trilemma
o Monetary policy regimes
o The role of macroprudential regulation
 Introduce diagnostic tools for monetary policy
o Taylor and inflation targeting rules
 Assess monetary policy stance

Workshop 6 (1.5 hours)

Objective: Acquire set of tools to assess the stance of monetary policy
Activity: The workshop develops tools to assess stance of monetary policy using (1) inflation
expectations; (2) real interest rates; (3) yield curves; (4) Taylor rules; and (5) inflation
targeting rules.

References
1. Orphanides, Athanasios, 2007, “Taylor Rules,” Federal Reserve Board Finance and
Discussion Paper Series, No. 18.

2. Bernanke, Ben S., 2010, “Monetary Policy and the Housing Bubble,” Address at the
Annual Meeting of the American Economic Association, Atlanta, Georgia, January 3, 2010.
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3. Fawley, Brett W. and Christopher J. Neely, 2013, “Four Stories of Quantitative

Easing,” Federal Reserve Bank of St. Louis Review, January/February, 95(1).

4. IMF, 2015, “Monetary Policy and Financial Stability,” IMF Policy Paper, August.

Online material
Link to online learning module: Monetary Policy Transmission Mechanisms

UNIT 6: ASSESSING MACRO-FINANCIAL LINKAGES

Lecture 7 (1.5 hours)
 Motivate the importance of assessing financial sector risks
 Highlight the impact of financial conditions on macroeconomic conditions and the
outlook, and vice versa:
o Assessment of the depth of financial market
o Feedback of financial conditions on the real economy
 Review Financial Soundness Indicators (FSIs) and the Balance Sheet Approach (BSA)

Workshop 7 (1.5 hours)

Objective: Calculate and interpret diagnostic tools (financial sector soundness and risk
indicators) and explore the links between the macroeconomy and the financial sector
Activity: The workshop (1) examines financial sector indicators, assessing the possible risks
to the system; (2) investigates the main risks exposures and financial linkages among sector
balance sheets.
References
1. IMF Institute, 2013, “The Monetary and Financial Sector” Chapter 6 in Vol. I, Financial
Programming and Policies, pp 175-181.
2. IMF, 2015, “Balance Sheet Analysis in Fund Surveillance,” IMF Policy Paper.

3. Matias Costa Navajas and Aaron Thegeya, “Financial Soundness Indicators and Banking
Crises,” IMF Working Paper, December 2013

UNIT 7: ASSESSING FISCAL POLICY

Lecture 8 (1.5 hours)
 Review fiscal accounts, including fiscal indicators and analysis of the composition of
expenditures and revenues
 Calculate the cyclically adjusted and structural balances using aggregated and
disaggregated approaches
 Review fiscal multipliers
 Assessment of the stance of fiscal policy
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 [Assessment of fiscal balances in resource-rich countries]

Workshop 8 (1.5 hours)

Objective: Measure fiscal balances and assess stance of fiscal policy
Activity: The workshop (1) identifies sources of changes in the current fiscal position; (2)
computes primary balances; (3) calculates cyclically-adjusted and structural balances;
(4) assesses the fiscal policy stance.

References
1. Batini, N., and others, 2014, 2014, “Fiscal Multipliers: Size, Determinants, and Use in
Macroeconomic Projections”. IMF Technical Notes and Manuals TNM 14/04.

2. Bornhorst, Fabian, and others, 2011, “When and How to Adjust Beyond the Business
Cycle? A Guide to Structural Fiscal Balances,” IMF Technical Notes and Manuals
(Washington: International Monetary Fund).

3. Daniel, James, and others, 2006, “Fiscal Adjustment for Stability and Growth,” IMF
Pamphlet Series, No. 55 http://www.imf.org/external/pubs/ft/pam/pam55/pam55.pdf

Online material
Link to online learning module: JVI Structural Balance Module.

UNIT 8: ASSESSING FISCAL SUSTAINABILITY

Lecture 9 (1.5 hours)
 Define fiscal solvency and fiscal sustainability
 Linking debt dynamics to government budget constraint
o Role of contingent liabilities – from financial sector or entitlements
 Analysis of public debt dynamics
 Show IMF debt sustainability framework: debt baseline and risk scenarios

Workshop 9 (1.5 hours)

Objective: Implement the public debt dynamic equation using an abbreviated version of
IMF’s debt sustainability framework
Activity: The workshop (1) introduces debt sustainability assessments; (2) develops a
baseline scenario; (3) conducts analysis of sensitivity to key assumptions; (4) explores
alternative debt sustainability scenarios.
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References
1. IMF Institute, 2013, “What is Debt Sustainability Analysis?” Chapter 8 and “Fiscal
Sustainability” Chapter 9 in Financial Programming and Policies, (unpublished;
Washington: IMF).

2. International Monetary Fund, 2013, “Staff Guidance Note for Public Debt
Sustainability Analysis in Market-Access Countries”, May 9, 2013,

3. Tanner, Evan, 2013, “Fiscal Sustainability: A 21st Century Guide for the Perplexed,”
IMF Working Paper 13/89 http://www.imf.org/external/pubs/cat/longres.aspx?sk=40482

Online material
Link to online learning module: DSAx (identified modules from Debt Sustainability course).

UNIT 9: ASSESSING THE EXTERNAL POSITION AND THE

EXCHANGE RATE
Lecture 10: Assessing the External Position (1.5 hours)
 Review the Balance of Payment accounts:
 Analyze the Current Account and links to domestic demand:
o Drivers, Intertemporal Choice, Trade and Savings-Investment perspective
o Terms of trade and commodity prices
 Analyze the Capital and Financial Account
o Review accounts
o External vulnerability indicators and crises

Workshop 10 (1.5 hours)

Objective: Analyze trends driving the external accounts
Activity: The workshop (1) analyzes trends in the current and capital and financial accounts;
(2) assesses whether these trends create external risks.
References
1. IMF Institute, 2013, “The External Sector” Chapter 4 in Vol. I, Financial Programming
and Policies, pp 175-181.
2. International Monetary Fund, 2014, “Are Global Imbalances at a Turning Point,” Chapter
4, World Economic Outlook, October (Washington).
3. Blanchard, Olivier and Milesi-Ferretti, Gian Maria, 2011, “(Why) Should Current
Account Balances be Reduced”, IMF Staff Discussion Note SDN/11/03.
4. Ghosh, Atish, and Uma Ramakrishnan, 2012, “Current Account Deficits: Is There a
Problem?” Finance & Development Magazine.
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Lecture 11: Assessing Competitiveness and the Exchange Rate (1.5 hours)
 Describe measures of competitiveness and related concepts:
o Price and non-price competitiveness
o Unit labor costs
o Export market shares
 Discuss equilibrium exchange rates (PPP-based, External Balance Assessment (EBA))
Workshop 11 (1.5 hours)
Objective: Implement methods to analyze competitiveness and to assess exchange rate
misalignment
Activity: The workshop (1) computes export market shares and analyzes measures of
competitiveness; (2) analyzes trends in exchange rates; (3) applies the External Balance
Assessment (EBA) methodology to the regional country case and comparator countries;
(4) considers misalignment of exchange rate in the context of EBA results and relevant
external indicators.
References
1. International Monetary Fund, 2013, “External Balance Assessment (EBA) Methodology”
December (Washington). Working Paper WP/13/272.

2. Catao, Luis, 2007, “Why Real Exchange Rates?,” Finance & Development Magazine
Vol.44 (3).

UNIT 10: EXTERNAL DEBT SUSTAINABILITY AND FOREIGN

RESERVE ADEQUACY
Lecture 12 (1.5 hours)
 Introduce indicators of external risk
 Discuss the International Investment Position (IIP)
 Examine IMF reserve adequacy metrics
 Introduce a framework for external debt sustainability assessment
Workshop 12 (1.5 hours)
Objective: Conduct an assessment of external debt sustainability and reserve adequacy
Activity: The workshop (1) analyzes external debt sustainability; (2) calculates reserve
adequacy measures.
1. International Monetary Fund, 2015, “2015 External Sector Report,” July (Washington).

2. International Monetary Fund, 2011, “Assessing Reserve Adequacy,” IMF Policy Paper,
February (Washington: International Monetary Fund).
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3. International Monetary Fund, 2013, “Assessing Reserve Adequacy—Further

Considerations,” IMF Policy Paper, February (Washington: International Monetary
Fund).

UNIT 11: ASSESSING RISK

Lecture 13 (1.5 hours)
 Identify key macroeconomic vulnerabilities & risks
o Vulnerabilities, especially weak economic and financial fundamentals
o External risks, including shocks from other countries
o Domestic risks, including risk that policies are not fully implemented and political
risks
 Develop a taxonomy of crisis
 Present a risk assessment matrix
Workshop 13 (1.5 hours)
Objective: Derive a country risk assessment matrix, based on an evaluation of external and
internal vulnerabilities
Activity: The workshop (1) identifies a set of possible shocks that might threaten the
economy; (2) considers the likelihood of realization of shock; (3) considers the potential
impact.
References
1. IMF Institute, 2013, “The Baseline Scenario” Chapter 7 in Vol. I, Financial
Programming and Policies, pp 175-181.
2. Rosenberg, Christoph, et al, 2005, “Debt-Related Vulnerabilities and Financial Crises:
An Application of the Balance Sheet Approach to Emerging Market Countries” IMF
Occasional Paper 240.
3. IMF, “Guidance Note for Surveillance under Article IV Consultation,” pp 13-18, May
2015
4. IMF, 2010, “The IMF-FSB Early Warning Exercise: Design and Methodological
Toolkit” (Washington).

UNIT 12: WRAP-UP

Lecture 14 (1.0 hours)
 Review key takeaways from the course
 Review key policy issues
o Macroeconomic policy mix (short-term monetary and fiscal policy stance)
o Fiscal issues (e.g. structural, sustainability)
o Financial stability
o Growth policy and structural (e.g. product and labor markets) reforms
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 Review expectations for the group presentations

GROUP PROJECT AND PRESENTATION

Workshop 14 (10 hours)

Objective: To provide an overall assessment of state of selected economy (10 hours)
Analysis:
The assessment will
• diagnose the current situation in the economy to inform policy decisions of authorities;
• specify areas of vulnerabilities;
• outline general directions for macroeconomic policy adjustment.
Output:
• A powerpoint presentation for a briefing with the Minister of Finance and the Governor
of the Central Bank
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ANNEX 1. REGIONAL CASE STUDIES

Region Country
Africa South Africa (2010)
Asia India (2018Q1)
Asia Indonesia (2017/2018Q3)
Asia Malaysia (2017)
Asia South Korea (2013)
Asia Sri Lanka (2018)
Asia Vietnam (2016)
Europe & Middle East Georgia (under construction)
Europe & Middle East Turkey (2015)
Western Hemisphere Costa Rica (2013)

ANNEX 2. DESCRIPTION AND OBJECTIVES OF THE ONLINE

VERSION (MDSX)
TARGET AUDIENCE: All government officials are welcome to register. The course is
particularly relevant for officials in central banks and ministries of finance or economy who
are directly involved in diagnosing the state of the macro-economy and making projections.
The course is offered in English.

REQUIREMENTS AND QUALIFICATIONS: Some knowledge of economics is helpful.

Basic Excel skills and access to a computer with a reliable Internet connection and a Google
Chrome web browser are essential.

COURSE DESCRIPTION: This online course, presented by the IMF Institute, is designed
to build up participants’ ability to assess a country’s macroeconomic situation; it emphasizes
practical tools for use in day-to-day macroeconomic analysis. The course covers assessments
of
 the current state of the macroeconomy;
 the stance of fiscal and monetary policy;
 financial stability; and
 the medium-term prospects of the economy, taking into account the sustainability of
public and external debt, possible misalignments of the exchange rate, and
vulnerabilities arising in the different sectors.
The course uses a case study to illustrate application of these tools and to show how they can
contribute to the policymaking process.

COURSE OBJECTIVES: Upon completion of this course, participants should be able to:
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 Analyze potential output and calculate output gaps, identify the expenditure
composition of growth, measure inflation, and assess inflation sources.
 Assess the stance of monetary and fiscal policy and interpret financial sector
soundness and risk indicators.
 Analyze public and external debt sustainability and the external position and evaluate
possible exchange rate misalignment.
 Assess the medium-term prospects of the economy, taking into account the
sustainability of public and external debt, and identify impediments to long-term
growth.

Syllabi of Face-to-Face and Online MDS in Comparison

MDS MDSx

Lecture 1 - Macroeconomic Framework

·     Describe macroeconomic stability and financial stability
·     Present the macroeconomic framework
·     Introduce selected indicators table and flow of funds tables
Lecture 2 - Supply and Productivity - Tools Module 1 - Supply and Productivity
·     Review measurement of GDP Supply Constraint
·     Define potential output and output gaps The Cobb-Douglas Approach
·     Introduce time series methods to estimate potential output Interpreting the Growth Decomposition
Lecture 3 - Supply and Productivity – Growth Diagnostics and Structural Reform Module 2 - Potential Output and Output Gaps
·     Discuss production function approach to estimate potential output Aggregate Supply and Aggregate Demand, the Price Level and Equilibrium
·     Introduce growth accounting Potential Output and Output Gaps
·     Describe growth diagnostics and discuss structural reform Diagnostic Tools - Estimating Potential Output/Output Gap
Lecture 4 - Analyzing Aggregate Demand Module 3 - Analyzing Aggregate Demand
·     Review expenditure decomposition of growth Growth Decomposition in Excel and Its Interpretation
·     Analyze major components of aggregate demand Analysis of Consumption and Investment
Aggregate Demand, the Business Cycle, and Co-movements
·     Describe the use of business cycles and short-term indicators to understand short-term fluctuations
Lecture 5 - Analyzing Inflation Module 4 - Analyzing Inflation
·     Discuss cost of excessively high/low inflation Concepts and Measurements
·     Describe the measurement of inflation, including headline and core inflation Determinants of Inflation
·     Introduce the Phillips curve and determinants of inflation The Phillips Curve
Lecture 6 - Analyzing Monetary Policy Module 5 - Analyzing Monetary Policy
·     Describe monetary policy frameworks Keys for Monetary Policy Diagnostics
·     Introduce Taylor and inflation targeting rules Linking Tools to Frameworks and Mechanisms
·     Assess monetary policy stance Diagnostic Tools
Lecture 7 - Assessing Macro-Financial Linkages Module 6 - Macrofinancial Linkages
·     Motivate the importance of assessing financial sector risks A first look at the banking system balance sheet: capital adequacy and asset quality
·     Highlight the impact of financial conditions to macroeconomic outlook and vice a versa Looking further: Vulnerabilities arising from shocks to earnings, liquidity, and exchange rates
·     Review financial sector soundness indicators Introducing variability: Z-score and other measures
Lecture 8 - Assessing Fiscal Policy Module 7 - Fiscal Policy
·     Review fiscal accounts Cyclically-Adjusted Fiscal Balance
·     Calculate and interpret the cyclically adjusted and structural fiscal balances Fiscal Stance and Fiscal Impulse
·     Assess the stance of fiscal policy Fiscal Multipliers
Lecture 9 - Assessing Fiscal Sustainability Module 8 - Fiscal Sustainability
·     Analysis of public debt dynamics Public Debt Dynamics
·     Introduce fiscal sustainability assessment Stabilizing Debt
·     Show IMF debt sustainability framework Macro-Fiscal Risks
Lecture 10 - Assessing the External Position Module 9 - The External Position
·     Review the balance of payment accounts An Overview of the Current Account
·     Analyze the current account and links to domestic demand Alternative Perspectives of the Current Account
·     Analyze the capital and financial accounts Drivers of The Current Account
Lecture 11 - Assessing Competitiveness and the Exchange Rate Module 10 - The Real Exchange Rate and Competitiveness
·     Describe measures of competitiveness Nominal and Real Effective Exchange Rates
·     Present and illustrate IMF approaches to exchange rate assessments External Balance Assessment
Lecture 12 - Assessing External Debt Sustainability and Foreign Reserve Adequacy Module 11 - External Sustainability and External Vulnerability
·     Examine IMF reserve adequacy metric External Debt Sustainability
·     Introduce framework for external debt sustainability assessment Reserve Adequacy
Lecture 13 - Assessing Risk Module 12 - Risks and Vulnerabilities
·     Identify key macroeconomic vulnerabilities Risks and Vulnerabilities
·     Develop a taxonomy of crisis Interrelated Risks and Vulnerabilities
·     Describe risk assessment matrix The Risk Assessment Matrix (RAM)