The Unassuming Economist

From a paper by Thuy Dao, Haithem Awijen, Rizwan Ahmed, and Hachmi Ben Ameur:

“This study examines the influence of technological innovation and geopolitical risk on energy security by analysing energy diversification indices—the Adjusted Herfindahl-Hirschman Index (HHI) and Country Diversification Index (CDI)—across 117 nations from 2002 to 2021. Utilising Pooled OLS, Feasible Generalised Least Squares (FGLS), and Multilevel Regression models, we evaluate the impact of patent-driven innovation and geopolitical volatility on energy diversification, political risk, and covariance effects. Our study concentrates on significant geopolitical events, such as the Iraq War, the Annexation of Crimea, and the 2014 Oil Price Collapse. Findings indicate that technological innovation consistently improves diversification and covariance dimensions, however, its impact on risk is contingent upon specific events. Conversely, geopolitical risk exhibits inconsistent statistical significance, indicating a more intricate, indirect influence on energy security outcomes. These findings provide practical recommendations for policymakers aiming to integrate an innovation-focused energy strategy with resilience to geopolitical disruptions.”

From a paper by Abhishek Halder and M. Kannadhasan:

“The growing concern over energy security has raised critical questions about the role of energy uncertainty in shaping firm-level outcomes. While prior research underscores the importance of energy uncertainty, there is limited understanding of its impact on corporate bankruptcy risk, particularly in a cross-country context. This paper presents the first empirical evidence of the relationship between energy uncertainty and corporate bankruptcy risk using a sample of listed firms from 28 countries. The findings reveal that energy uncertainty escalates bankruptcy risk, which is consistent with resource dependency, agency and pecking order theories. Contracting profit margins and surging cost of debt are two intervening mechanisms through which energy uncertainty adversely impacts bankruptcy risk, indicating that heightened costs associated with operating and financing activities inflates financial distress. We also unveil that a conservative working capital policy and superior working capital efficiency diminish the detrimental impact of energy uncertainty. Our sub-sample analyses divulges that this detrimental impact is stronger in firms operating in high energy-consuming and cyclical sectors, and in those based in energy exporting and high energy-intensity countries. Furthermore, at low levels of energy uncertainty, firms effectively curtail bankruptcy risk by executing risk management measures whereas such measures are ineffective when energy uncertainty surpasses a threshold at ∼25th percentile. Our baseline result remains unchanged on employing several robustness checks. Overall, this study yields crucial insights and suggestions for corporate managers, regulators and policymakers to navigate energy shocks and to enhance firm resilience through strategic planning and decision-making.”

From a paper by Oleg Gurshev and Lucas van der Velde

“We examine the contribution of supply and demand shocks to income inequality in a panel setting. Leveraging the newly created Global Repository of Income Dynamics, we study the relationship between unanticipated supply and demand shocks and income inequality, distinguishing between domestic and international (US) shocks. Our results show that shocks originating in the United States, on average, increase income dispersion in other developed countries: demand shocks tend to produce stronger reactions than supply shocks. We explore different transmission channels: trade, financial and expectations. The trade channel appears particularly relevant for supply shocks. Comparing these external shocks with domestic counterparts, we find that domestic demand shocks exhibit similar dynamics, while domestic supply shocks are associated with declines in income inequality.”

From a paper by Jeffrey A. Levy, Gabriel Mathy, and Xuguang Simon Sheng:

“Uncertain times are often bad times, and separating uncertainty shocks from large negative
level shocks is difficult. We use the Base Realignment and Closure (BRAC) process in the
United States in 2005 to investigate this issue, where the level shock may be positive, negative,
or neutral, and is finalized only after a well defined period of significant uncertainty. When
combined with an even greater period of time before the level shock is implemented, we can
clearly separate first-moment from second-moment shocks. When using attention to BRAC
as an instrument, we find that the effect of uncertainty on employment and the labor force is
small but significant, with a 1% decrease in response to a one standard deviation increase in
uncertainty. While similar, the peak effect is smaller and comes after a shorter lag than the
effect found in the existing literature that relies on dynamic models that fall short of making
causal claims.”

From a paper by Jean-Francois Verne:

“This study considers the nonlinear relationship between GDP growth and unemployment in France (1975–2024) using a logistic smooth transition regression (LSTR) model. Findings reveal a threshold unemployment rate of 7.93%, above which the traditional Okun’s law holds (GDP growth reduces unemployment). Below this threshold, an inverted Okun’s law emerges, where economic growth coincides with rising unemployment. This is explained by technological advancements, skill mismatches, and delayed employment adjustments. The results indicate that macroeconomic policies based on linear assumptions are limited in their capacity to address unemployment challenges effectively. Recognizing these nonlinear dynamics is crucial for designing effective labor market policies that account for asymmetries in economic fluctuations.”