The Unassuming Economist

From a paper by Yu-Ting Chiang, Mikayel Sukiasyan, and Piotr Zoch:

“This article examines the distributional effects of government bailouts using a heterogeneous agent New Keynesian model with financial intermediation frictions. We analyze government equity injections to financial institutions financed by debt issuance, capturing essential features of bailout policies during financial crises. When calibrated to match key features of the U.S. economy, bailout policies are expansionary and reduce inequality through general equilibrium effects operating primarily via aggregate demand stimulation and increased labor income rather than direct wealth effects. Equity injections increase the financial sector’s capacity to intermediate capital, leading to higher capital prices, increased investment, and substantial aggregate demand increases. This improves labor market conditions that benefit lower-income households more than wealth effects benefit the wealthy. The result is reduced wealth and consumption inequality, demonstrating that bailouts can simultaneously achieve macroeconomic stabilization and inequality reduction.”

From a paper by Krishantha Wisenthige, Heshan Sameera Kankanam Pathiranage, and Ruwan Jayathilaka:

“This study delves into the rationale behind the tendency of nations in the Middle East and Central Asia (MECA) to seek aid from the IMF. The IMF supports global financial stability, aiming to foster economic growth and prosperity across its member countries by promoting policies that encourage monetary cooperation and financial resilience. The study employs a conditional fixed-effects logit model, the analysis spans 22 years of data from twenty-five MECA countries to identify the factors driving these nations to seek IMF assistance. It focuses on six determinants: Current Account Balance (CAB), Inflation (INF), Corruption (CORR), General Government Net Lending and Borrowing (GGNLB), General Government Gross Debt (GGGD), and Gross Domestic Product Growth (GDPG). The fixed-effects logit shows that slower GDP growth raises the odds of an IMF programme, while short-run changes in corruption control and public debt ratios are not significant once country and year effects are absorbed. Inflation is weakly positive; the current account balance is still insignificant. A post-GFC and an income-group robustness check confirm the pattern. Furthermore, the study identifies Lebanon, a lower-middle-income country, as a leading example of seeking IMF assistance during the study period. Overall, this research highlights the importance of policymakers understanding the dynamics and rankings within the MECA region to effectively address economic challenges, provide financial support, and foster a more sustainable economic structure.”

From a paper by Lin Li, and Guoping Li:

“Using data on analysts’ individual forecasts from all listed companies in China’s A-share market for the period 2007–2022, we document two stylized facts. First, the average forecast error can be predicted by forecast revision. Second, individual forecasts appear to over-react to own revisions and salient public signals, we show that the first fact is inconsistent with standard models of full information rational expectations. The second fact suggests that individuals may be irrational with respect to their use of information. Expectation formation theory suitable for China’s capital market may need to combine information friction and irrational belief.”

From a paper by William Gale, Ian Berlin, and Sam Thorpe:

“How should the United States respond to its unsustainable fiscal outlook? How and when a country should fiscally consolidate depends on its existing circumstances, policies, and institutions. We review the experiences of other countries that attempted consolidations and highlight lessons applicable to the United States. We find that (1) the United States does not face a short-term crisis, so it can employ gradual adjustments, which may minimize short-term harm, (2) consolidation should occur in a strong economy with monetary accommodation, and (3) tax increases (spending cuts) could plausibly play a larger (smaller) role in US consolidations than in European adjustments.”

From a paper by Simona E. Cociuba and James C. MacGee:

“Demographic projections show the majority of OECD economies will see declines in their working-age populations in the coming decades. This is potentially problematic, since young workers account for a large share of net labor reallocation between growing and shrinking industries. To examine if sectoral reallocation costs are exacerbated by an aging population, we develop a three-sector perpetual youth search model with sector-specific human capital. Our model features two interconnected frictions: sectoral preference, which implies that only some workers are mobile across sectors, and a wage bargaining distortion, whereby mobile workers’ outside option of searching in the growing sector dampens the fall in shrinking sector wages, leading to rest unemployment. In our parametrized model, as population growth declines from 3 to  percent, output losses from a one-time reallocation shock of 3 percentage points increase seven-fold to nearly 10 percent of annual GDP, and there are extended periods of high unemployment and low vacancies.”