The Unassuming Economist

From a paper by Sini Sabu:

“This study examines the asymmetric relationship between real exchange rate fluctuations and household inflation expectations in India via ARDL and multiple threshold nonlinear autoregressive distributed lag (MTNARDL) models. The results indicate that inflation expectations respond significantly to exchange rate appreciation but are less sensitive to depreciation. A threshold analysis confirms that only substantial exchange rate deviations affect expectations, whereas minor fluctuations have negligible effects. Empirical evidence suggests that an appreciation of the real effective exchange rate by 10 units reduces inflation expectations by approximately 3.2 percentage points, whereas a similar depreciation results in only a 1.4 percentage point increase. These findings challenge the assumption of symmetric exchange rate pass-through and emphasize the importance of exchange rate stability in monetary policy formulation. Given the implications for inflation targeting, policymakers should prioritize exchange rate interventions that minimize excessive appreciation, while also strengthening communication strategies to manage inflation expectations more effectively.”

From a VoxEU post by Maarten Verwey and  Kristian Orsini:

“President Trump’s sweeping “reciprocal tariffs” announced on 2 April sent shockwaves through the global economy. This column introduces the European Commission’s Spring Forecast, which depicts a resilient EU economy. Yet growth is set to remain modest, reinforcing the image of a continent buffeted by external shocks and mired in low growth. Tariffs, and even more so, heightened uncertainty and tightening financial conditions weigh on trade and investment. While the labour market remains strong and inflation recedes, households still hesitate to spend, dimming prospects for a more substantial improvement in economic conditions. With policy buffers constrained, the margin for countercyclical support is limited. Still, by fully leveraging its strengths and addressing structural gaps, the EU can move beyond resilience – and thrive even in a more fragmented, volatile, and at times hostile world.”

From a paper by Alberto Americo, Douglas K G Araujo, Johannes Damp, Sjur Nilsen, Daniel Rees, Rafael Schmidt and Christian Schmieder:

“We identify and document key stylised facts of inflation cycles for a large panel of advanced and
emerging market economies. To this end, we propose three complementary inflation cycle concepts: (1)
cycles in inflation levels, reflecting mostly the low- and medium-frequency components of inflation; (2)
cycles in higher-frequency deviation of inflation from its trend; and (3) a categorisation of inflation into
high and low inflation regimes. For each concept, we document key stylised facts within and across
countries and examine how these have evolved over time. We also show that the relationship between
inflation and business cycles matters: entry in a high-inflation regime is associated with a significantly
higher chance of a recession in the following quarters. A cross-country dataset with the inflation cycles is
made publicly available.”

From a paper by Nicolas Chatelais, Arthur Stalla-Bourdillon, and Menzie D. Chinn:

“After the Covid-shock in March 2020, stock prices declined abruptly, reflecting both the
deterioration of investors’ expectations of economic activity as well as the surge in aggregate risk
aversion. In the following months however, whereas economic activity remained sluggish, equity
markets sharply bounced back. This disconnect between equity values and macro-variables can
be partially explained by other factors, namely the decline in risk-free interest rates, and, for the
US, the strong profitability of the IT sector. As a result, an econometrician trying to forecast
economic activity with aggregate stock market variables during the Covid-crisis is likely to get
poor results. The main idea of the paper is thus to rely on sectorally disaggregated equity
variables within a factor model to predict future US economic activity. We find, first, that the
factor model better predicts future economic activity compared to aggregate equity variables or to
usual benchmarks used in macroeconomic forecasting (both in-sample and out-of-sample).
Second, we show that the strong performance of the factor model comes from the fact that the
model filters out the “expected returns” component of the sectoral equity variables as well as the
foreign component of aggregate future cash flows, and that it also over-weights upstream and
“value” sectors that are found to be closely linked to the future state of the US business cycle.”

From a paper by William Ginna:

“This paper presents a non-linear extension of the Phillips Curve by estimating a Local Projections (LP) panel model using data from 14 countries between January 1999 and December 2023. The non-linearity arises from the asymmetric effects of the El Niño–Southern Oscillation (ENSO), which alternates between El Niño and La Niña phases. The findings highlight two key dimensions of this asymmetry: slope and curvature. In terms of slope, the Phillips Curve is significantly steeper during La Niña episodes, with inflation responding more strongly and persistently to unemployment gaps. In terms of curvature, the inflation response under La Niña builds over time, reflecting non-linear propagation dynamics. In contrast, the Phillips Curve is flatter and responses are weaker and less persistent during El Niño phases. These findings underscore the importance of incorporating ENSO variability into macroeconomic models.”