The Unassuming Economist

From a paper by Sunil Sharma:

“Despite over a decade of reforms, financial systems remain fragile, and with the ongoing degradation of the biosphere addressing these fragilities is becoming even more challenging. The green digital transition requires innovation and experimentation. Laws and rules must support competition for novel technologies and solutions, allow for failure, and facilitate re-allocation of labor, real assets, and capital. Hence, the case for robust banks, nonbank financial intermediaries, and market infrastructure is even more urgent and compelling.

Complexity and deep uncertainty characterize the green digital transition and the operation of economic systems. Taking this seriously means recognizing that simpler heuristic approaches may dominate complicated optimization strategies. We must be cognizant of what we know, what we can know over relevant time horizons, and what may be unknowable.

Given the weaknesses of the current approach to financial regulation and oversight, changes in institutional and financial structure should be considered that would reduce the use of “runnable” short-term debt, create more transparency and better incentives for all players, and hence lessen the need for complicated rules, explicit and implicit State guarantees, and interventions in markets.

In an era of chronic and acute disruptions, durable price and financial stability will require not just accounting for financial hazards, but also engaging in promoting a structural transition. With time running out and the world approaching critical ecological thresholds, central banks and financial regulators will have to integrate environmental considerations into their operations and policies and collaborate more closely with other government agencies.

To increase the systemic resilience of the financial sector, the policy essay argues for:

(i) simplicity in prudential rules; (ii) higher buffers in financial institutions; (iii) greater modularity in the structure of the financial system; (iv) better use of market forces and public discipline; and (v) more credible and effective supervision.”

From a paper by Roman Horvath, Eva Horvatova, Maria Siranova:

“We examine the determinants of financial development using our global sample and employing different measures of financial development that assess the degree of depth and efficiency of financial intermediaries. We use instrumental variable Bayesian model averaging to test competing theories with this unifying framework. After examining nearly 20 potential determinants of financial development, we find that the rule of law, as well as some of its components, is the most important. In addition, our results suggest that wealth inequality is irrelevant to banking sector development but positively associated with stock market development.”

From a paper by Radhika Pandey, Ila Patnaik and Rajeswari Sengupta:

“It has been eight years since India adopted the inflation targeting (IT) framework for its monetary
policy. In this paper we present a comprehensive analysis of the IT regime, addressing several critical
aspects. We evaluate the performance of inflation over this period, and review the conduct of monetary
policy during and after the Covid-19 pandemic. We also identify key challenges that persist particularly
in context of the Impossible Trilemma and highlight issues that may require further examination in
order to improve the effectiveness of the IT framework in the future.”

From a paper by Peter Morgan, Angelica Maddawin, Dina Azhgaliyeva, Wataru Kodama, and Long Q. Trinh:

“Food insecurity has become of increasing concern following the economic downturn during the COVID-19 pandemic and the subsequent sharp rise in inflation, including food price inflation. To better understand the conditions of food insecurity and the impacts of inflation and other drivers of food insecurity in developing Asia, we carried out a household survey in 2023 in seven countries in Southeast Asia and nine countries in the Caucasus and Central Asia. The key results are as follows. First, households that had low income and experienced income declines and/or financial difficulties were more likely to experience food insecurity. Second, households that experienced high inflation, including food price inflation, also tended to have higher food insecurity. Third, among the coping strategies adopted by households, only applying for government aid had a significant effect on reducing food insecurity. Our study contributes to the literature because of both the large number of countries and the large number of variables covered in the analysis. These results highlight the need to develop effective measures to reduce food insecurity among vulnerable groups, which were identified in this study as households with low income, poor financial circumstances and larger family size.”

From a paper by Roberta Capello, Simona Ciappei and Camilla Lenzi:

“Despite the numerous contributions assessing the efficiency and effectiveness of Cohesion Policies, their role in stimulating growth and cohesion in different macroeconomic settings and in different business cycle periods remains highly debated. This article aims at contributing to this literature by investigating the link between Cohesion Policy, economic growth and interregional inequalities over periods of crisis and recovery. In particular, the article analyses whether Cohesion Policy is beneficial for the recovery of those regions mostly hit by the crisis and contributes to narrowing interregional gaps enhanced by the crisis. In addition, the paper analyses how the link between Cohesion Policy and interregional inequalities changes by investment axes, as it is the case of Research, Technology Development and Innovation funds, targeted to different goals. Based on an analysis covering all EU27 and UK NUTS2 regions in the period 2008–2019, the article confirms the multifaceted nexus between Cohesion Policy and interregional inequalities. It also raises warnings about the potential conflicts between its overarching goals and its multiple and expanding strategic objectives.”