The Unassuming Economist

From a paper by Surjit Bhalla, Karan Bhasin, and Prakash Loungani:

“The trend inflation levels in India and other emerging market economies suggest a downward trajectory regardless of the adoption of inflation targeting. Therefore, it is difficult to conclusively establish that the adoption of inflation targeting in India led to a moderation in inflation or anchoring of inflation expectations. There is also some evidence that the anchoring of household expectations predates the formal adoption of inflation targeting. Similarly, long-term expectations in India have remained firmly anchored since the early 2000s. In terms of growth, the high real interest rates policy followed during the initial years of inflation targeting has adversely affected India’s growth dynamics.”

From a paper by Luca Bettarelli, Davide Furceri, Prakash Loungani, Jonathan D. Ostry, and Loredana Pisano:

“If economic activity is considered the primary driver of climate change through emissions of carbon dioxide, then supporting economic growth and fighting emissions would appear to be at odds. However, the process of economic development may itself foster complementarity between GDP growth and emissions reductions. Such complementary in the relationship between economic development and emissions reduction might reflect changes in the industrial composition of economic activity, technological advancements or environmental consciousness. 

This view is in line with the Environmental Kuznets Curve (EKC) hypothesis: that per-capita income growth is associated with increases in carbon emissions up to a certain threshold of economic development, but beyond that threshold, higher per-capita incomes are associated with lower emissions per capita. The EKC hypothesis, suggests that economic development is actually a pathway to environmental improvements. 

We test the EKC hypothesis for 191 countries over 1989-2022, enabling us to study the overall validity of the EKC hypothesis at global level. Moreover, by interacting GDP per capita with an index measuring the stringency of climate policies, we shed light on whether and how climate policies mediate the impact of GDP on emissions. We find that emissions respond to increasing per-capita income levels nonlinearly, with a turning point at about $25,000 on average. Importantly, we show that climate policies shape the relationship between income and emissions by making the EKC lower and flatter, thus favouring a decoupling between emissions and economic activity. Our results have important policy implications, as they identify economic development as a pathway to environmental improvements. We also show that environmental policies are an essential ingredient to achieve decoupling of emissions and economic output over the longer term.”

From a paper by Yurii Sholomytskyi:

“This paper examines the statistical properties of the IMF’s World Economic Outlook (WEO) projections over 1999–2023 for 29 economies. The optimism of WEO growth forecasts is well established; we confirm it and look behind it at two features of how the forecasts are built. First, the growth of the systemic economies (the United States and China) appears to be underutilized in the projections: forecasts embed less of the cross-country growth comovement present in the data, a gap we term forecast fragmentation that did not narrow over the sample. Second, the conditional growth–inflation link present in the historical data is weakly represented in the projections. These patterns suggest that structural models, in which such cross-country and real–nominal linkages can be verified through estimation, could be a useful complement to expert judgment, serving as a baseline check for medium-term anchors.”

From a paper by Mark Zandi, Cristian deRitis, Marisa DiNatale, Dante DeAntonio, Matt Colyar, Shandor Whitcher, Justin Begley, Ilir Hysa, and Gwen Semmens:

“Artificial intelligence stands to become one of the most consequential technologies in generations, if not in the history of humankind, with enormous implications for the economy. However, the specifics of how it will shape the future remain highly uncertain and are the subject of immense debate. Many technologists deeply involved in AI’s development believe it will massively increase productivity, resulting in significant net job loss and much higher unemployment. Conversely, most economists who look to the economic history of past general-purpose technologies tend to be more circumspect, expecting AI to lift productivity but also to diffuse slowly enough through the economy for the job market to adjust more gracefully. There may be bouts of higher unemployment, but any increase will be modest, as jobs lost to AI will be largely offset by new jobs supported by the income and wealth it creates.”

From a paper by Marina da Silva Sanches:

“This study examines the effects of fiscal consolidation on income inequality in OECD countries from 1978 to 2014, using narrative data. Employing local projections methodology and using a Gini decomposition interpretation, we estimate the impact of austerity episodes on disposable income, market income, wage, and functional inequalities. While the literature has primarily focused on the overall effect of fiscal consolidation on disposable income inequality, this paper examines how different dimensions of inequality respond to fiscal consolidation episodes. We find an increase in wage inequality in the short and medium runs, and a decrease in labor’s share of income in the short run. The results also underscore the importance of social protection in the short term. Additionally, we observe a significant increase in earnings inequality, when including the lower end of the distribution. Finally, spending-based austerity measures are, in general, more relevant than tax-based ones. Results are robust to several tests.”