The Unassuming Economist

From a new IMF working paper by Reda Cherif and Fuad Hasanov:

“Industrial policy is tainted with bad reputation among policymakers and academics and is often viewed as the road to perdition for developing economies. Yet the success of the Asian Miracles with industrial policy stands as an uncomfortable story that many ignore or claim it cannot be replicated. Using a theory and empirical evidence, we argue that one can learn more from miracles than failures. We suggest three key principles behind their success: (i) the support of domestic producers in sophisticated industries, beyond the initial comparative advantage; (ii) export orientation; and (iii) the pursuit of fierce competition with strict accountability.”

From Glenn D. Rudebusch at the Federal Reserve Bank of San Francisco:

“Climate change describes the current trend toward higher average global temperatures and accompanying environmental shifts such as rising sea levels and more severe storms, floods, droughts, and heat waves. In coming decades, climate change—and efforts to limit that change and adapt to it—will have increasingly important effects on the U.S. economy. These effects and their associated risks are relevant considerations for the Federal Reserve in fulfilling its mandate for macroeconomic and financial stability.

 

To help foster macroeconomic and financial stability, it is essential for Federal Reserve policymakers to understand how the economy operates and evolves over time. In this century, three key forces are transforming the economy: a demographic shift toward an older population, rapid advances in technology, and climate change. Climate change has direct effects on the economy resulting from various environmental shifts, including hotter temperatures, rising sea levels, and more frequent and extreme storms, floods, and droughts. It also has indirect effects resulting from attempts to adapt to these new conditions and from efforts to limit or mitigate climate change through a transition to a low-carbon economy. This Economic Letter describes how the consequences of climate change are relevant for the Fed’s monetary and financial policy.

Climate change and the transition to a low-carbon economy

Surface temperatures were first regularly recorded around the world in the late 1800s. Since then, the global average temperature has risen almost 2°F (Figure 1) with further increases projected (IPCC 2018). Based on extensive scientific theory and evidence, a consensus view among scientists is that global warming is the result of carbon emissions from burning coal, oil, and other fossil fuels. Indeed, as early as 1896, the Swedish chemist Svante Arrhenius showed that carbon emissions from human activities could cause global warming through a greenhouse effect. The underlying science is straightforward: Certain gases in the atmosphere, such as carbon dioxide and methane, capture the sun’s heat that is reflected off the Earth’s surface, thus blocking that heat from escaping into space. These greenhouse gases act like a blanket around the earth holding in heat. As more fossil fuels are burned, the blanket gets thicker, and global average temperatures increase. Other empirical measurements have confirmed many related adverse environmental changes such as rising sea levels and ocean acidity, shrinking glaciers and ice sheets, disappearing species, and more extreme storms (USGCRP 2018).

 

Continue reading here.

 

From the IMF’s latest report on San Marino:

“Housing construction picked up from low levels while car registration has dropped.”

From Our World in Data:

From a new IMF working paper by Dilyana Dimova:

“The labor share in Europe has been on a downward trend. This paper finds that the decline is concentrated in manufacture and among low- to mid-skilled workers. The shifting nature of employment away from full-time jobs and a rollback of employment protection, unemployment benefits and unemployment benefits have been the main contributors. Technology and globalization hurt sectors where jobs are routinizable but helped others that require specialized skills. High-skilled professionals gained labor share driven by productivity aided by flexible work environments, while low- and mid-skilled workers lost labor share owing to globalization and the erosion of labor market safety nets.

The value-added share accrued to labor commonly known as the labor share—the ratio of labor compensation (wages and benefits) to national income—has been on a downward trend in the EU in the last couple of decades (Figure 1). This trend is observed both in recession-hit Advanced Economies (AE) like Ireland, Portugal and Spain as well as in economically prosperous Germany and the Netherlands (Figure 1, upper panels), and began around 2012–13 after the Great Recession (GR). In New Member States (NMS), Estonia, Hungary, Latvia and Lithuania experienced a decline in 2009–15 and are on the rebound (Figure 1, lower panels). Other NMS economies such as Croatia, Poland and Romania have yet to return to their 2002 levels. The positive exception is Bulgaria whose labor share has been on an upward trend due to an economic deepening from relatively low levels.

This paper looks at the evolution of the labor share by industry and by skill level and considers the effect of various structural factors on the EU-wide stagnation and erosion of the labor share. Following Dao et al. (2017), first a shift-share analysis is used to demonstrate the extent to which the downward trend in the labor share is driven by within-sector/skill category declines or by changes across sectors/skill category. The analysis establishes that within-sector/skill category changes account for the majority of labor share fluctuations and provides justification for the structural factor analysis. Then the paper quantifies the extent to which structural drivers track changes in the labor share in 28 EU-member countries, representing both advanced economies and transitional economies, in a cross-country panel study that uses disaggregated data for twelve industry sectors and three skill categories.”