The Unassuming Economist

From a paper by Óscar Peláez-Herreros:

“We develop the first disaggregation of Okun’s law that quantifies all of the information that is subsumed within its coefficients. The proposed method decomposes the coefficients into the sum of the direct effect of the change in output upon the unemployment rate, plus the indirect effects of the variations in the output per hour worked, the hours worked per employed person, the participation rate, and the size of the working-age population. With quarterly data for the United States from 1948 to 2024, we found that the value of the intercept in Okun’s relation is determined by the increases in working-age population and output per hour of work, along with the decrease in the number of hours worked per employed person, plus the growth of the participation rate until the 1990s and its subsequent decline. For its part, the slope, that is, the value of Okun’s coefficient, depends mainly upon the variations in output per hour of work and the hours per employed person. The other factors were scarcely relevant. Changes in these components caused the Okun’s relation to vary over time, showing a greater sensitivity of the unemployment rate to variations in production since the 2008 crisis.”

From a paper by Tayebeh Chaman, Ali Asghar Salem, Abbas Shakeri Hossein Abad, and Teymour Mohammadi:

“The inflation targeting regime, by emphasizing transparency, accountability, and anchoring inflation expectations, leads to improved inflation control, a reduction in economic instability, and the creation of a favorable environment for economic growth, productive investment, and lower income inequality. Therefore, the objective of the present study is to investigate the role of inflation targeting in income distribution across a sample of 39 countries, including 7 inflation-targeting and 32 non-inflation-targeting countries, using a difference-in-differences approach over the period 1995–2023. The findings indicate that the implementation of an inflation-targeting regime has a negative and statistically significant effect on the Gini coefficient, thereby reducing income inequality in the treatment-group countries relative to the control group. In addition, per capita GDP, the share of the agricultural sector in GDP, and foreign direct investment have negative and significant effects on income inequality, while the trade share of GDP has a positive and significant effect. Overall, the results suggest that adopting an inflation-targeting regime in countries experiencing high inflation and ineffective monetary policy frameworks can mitigate the adverse effects of inflation on income distribution. Thus, it is recommended that central banks in such countries implement an inflation-targeting framework to enhance macroeconomic stability, promote investment, and reduce income inequality.”

From a paper by Abdullah Gülcü, Erdal Özmen and Fatma Tasdemir:

“This study aims to explore the nonlinear impact of financial integration on income inequality in advanced (AE) and emerging market and developing economies (EMDE). Our panel fixed effect threshold estimation results suggest that international financial integration (IFI) provides a data-driven estimated threshold for the effect of IFI on income inequality. IFI is positively associated with inequality in EMDE, albeit this positive relation diminishes in more financially integrated episodes. In AE, inequality decreases with IFI in less financially integrated episodes. Our empirical findings reveal that the relationship between IFI and inequality is driven by both capital inflows and outflows in AE while it is determined by capital inflows in EMDE. Finally, we investigate whether the impact of IFI on inequality changes with the level of financial development. Our results also suggest that the inequality-increasing effect of IFI is much lower in financially more developed episodes in EMDE. All these findings imply that policies fostering financial development and equitable financial access are crucially important to mitigate the adverse effects of IFI on inequality, especially in EMDE.”

From a paper by Julien Pascal:

“This paper provides a comprehensive review of the fast-expanding literature on household heterogeneity in macroeconomic models. It not only examines the main mechanisms through which household heterogeneity affects the transmission of monetary policy, but also offers a unified framework for understanding the main analytical and numerical approaches used to solve macroeconomic models with heterogeneity. These include limited-heterogeneity, history-truncation, and no-trade equilibria on the analytical side; forecasting-rule, linearization (state-space or sequence-space), and global methods on the numerical side. By highlighting the links and trade-offs among these approaches, the paper provides guidance for selecting appropriate solution techniques depending on the structure and purpose of the model.”

From a paper by John Iselin, and Daniel Reck:

“We analyze how tax noncompliance modifies the dynamics of the income distribution. Relative
rates of misreporting (RRMs) between the top 1% and bottom 99% are sufficient to answer this
question. The essential unknown dynamically is the RRM for pass-through income. Reviewing
available evidence, we argue that plausibly, this RRM is between 0.3 and 1.0 and constant over
time. Including misreporting changes the difference in the top 1% share of fiscal (pre-tax national)
income from 1962 to 2019 by -0.1 to 0.8 percentage points (0.2-0.8pp), compared to -0.7pp (-0.3)
with Auten and Splinter’s approach and 1.0pp (0.6) with Piketty, Saez, and Zucman’s.”