The Unassuming Economist

From a paper by Melike Bildirici, Özgür Ömer Ersin and Godwin Olasehinde-Williams:

“We argue that climate policy uncertainty can lead to a unique type of regulatory arbitrage whereby domestic firms respond to fluctuations between lax and stringent environmental regulations by relocating their production processes to jurisdictions with minimal environmental policies that could affect their profitability. The presence of uncertainty-driven environmental regulatory arbitrage may consequently contribute to the emergence of regions or countries that act as havens. This phenomenon could intensify internal carbon leakage, especially in economies with ambitious climate targets, as efforts to manage the risks associated with uncertain policies involuntarily result in increased carbon emissions elsewhere. Over time, this could lead to a rise in emissions displacement due to higher imports from abroad. To back up our claim with empirical evidence, we specifically study the internal carbon leakage in the EU15 countries resulting from the climate policy uncertainty. The analysis covers the period 1990–2022. A battery of econometric techniques is adopted—Fourier and conventional unit root tests, cointegration testing within the Fourier ARDL framework, short and long-run estimations within the Fourier ARDL framework, as well as Fourier Granger causality testing. By employing this battery of testing methodologies, we ensure robustness and thus the credibility of the study findings. Overall, after controlling for the effects of ecological innovation, environmental policy stringency, and the real GDP, we find that increases in climate policy uncertainty raise internal carbon leakage contemporaneously and that internal carbon leakage declines as climate policy uncertainty dies out over time in the long along with the short term. Furthermore, causality results reveal that climate policy uncertainty is a significant predictor of internal carbon leakage into the European Union. This study therefore identifies climate policy uncertainty as a potential source of idiosyncratic and systemic risk that aggravates internal carbon leakage as European Union products get replaced by more carbon-intensive imports.”

From a paper by Cong Minh Huynh, and Khanh Nam Pham:

“In a comprehensive study across 32 Asian countries and territories spanning 2002–2018, we unveil the surprising impact of uncertainty on income inequality. Contrary to conventional expectations, our analysis reveals a fascinating trend: heightened uncertainty appears to wield a dual impact on income distribution. While it diminishes the income shares of both the richest and the poorest segments of society, the reduction is far more pronounced among the wealthiest quintile. Surprisingly, this outcome leads to a lessening of income inequality. The results are robust with fixed effects, feasible generalized least squares, and especially panel vector autoregression (PVAR) to tackle endogeneity concerns. The findings imply that in a more stable environment, the rich enjoy a higher growth of income than the poor, while in higher uncertainty, the income of the rich drops more dramatically than that of the poor. Thus, policymakers should take this into consideration for appropriately making income redistribution policies during normal and crisis periods, especially considering the varying impact of uncertainty on different segments of society.”

From a paper by Umberto Collodel and Vanessa Kunzmann:

“This paper investigates the transmission of monetary policy to financial markets within the Euro area, focusing on the role of uncertainty. While previous research has extensively examined the effects of changes in expected policy rates through event studies of European Central Banks (ECB) announcements, the impact of second moments and uncertainty has been far less explored. We address this gap by introducing a novel market-based measure of uncertainty regarding future interest rates, calculated as the difference in the standard deviation of Overnight Index Swap (OIS) rates in a three-day window around ECB policy announcements. Our findings reveal that ECB announcements generally increase market uncertainty about future interest rates, regardless of the sign of the policy surprise. This increased uncertainty significantly impacts asset prices, leading to higher nominal yields, lower stock market returns, and Euro appreciation against safe-haven currencies.”

From a post by Charles Collyns and Michael Klein:

“The price of gold has jumped over 40 percent since the end of 2023, reaching $3,000 per ounce in mid-March 2025. This leap cannot be explained by a sudden increase in the demand for gold as jewelry or for its use in industrial production. Rather, it reflects the shifting demand for the yellow metal as a financial asset. Historically, gold has been held by private investors who see gold as a good way to protect wealth during inflationary periods or when there is substantial economic or political uncertainty as well as by central banks as part of their international reserves. Can shifts in these motivations explain the recent dramatic rise in the gold price?”

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From a new paper by Efrem Castelnuovo, Kerem Tuzcuoglu, and Luis Uzeda:

“We propose a new empirical framework to estimate sectoral uncertainty from data-rich environments. We jointly decompose the conditional variance of economic time series into a common, a sector-specific, and an idiosyncratic component. By specifying a hierarchical-factor structure to stochastic volatility modeling, our framework combines both dimension reduction and flexibility. To estimate the model, we develop an efficient Markov Chain Monte Carlo algorithm based on precision sampling techniques. We apply our framework to a large dataset of disaggregated industrial production series for the U.S. economy. Our findings suggest that: (i) uncertainty is heterogeneous at a sectoral level; and (ii) durable goods uncertainty may drive some business cycle effects typically attributed to aggregate uncertainty.”