The Unassuming Economist

From a paper by Giorgio Liotti, Marco Musella, and Ferdinando Ofria:

“Mainstream economic theory posits that high public debt levels create fragile conditions within the Eurozone by undermining economic growth, forcing countries to borrow on financial markets through the issuance of government bonds, and compromising the smooth functioning of the economic system. The Washington Consensus advocates fiscal austerity as a strategy to reduce public debt. This paper assesses whether the implementation of such austerity policies indeed reduces public debt. Using data on the change in cyclically adjusted primary balance in twelve Eurozone countries between 1999 and 2019 as a proxy for austerity measures, the empirical results, obtained using a Panel Dynamic OLS (PDOLS), reject the hypothesis of an inverse relationship between changes in the cyclically adjusted primary balance and the level of public debt. Conversely, we find that the adoption of fiscal austerity measures is associated with an increase in the level of public debt.”

From a paper by João Tovar Jalles, Carola Pessino, and Ana Cristina CalderonInter:

“Widening income disparities, higher corruption, and increased informality in many emerging market and developing economies (EMDEs)—all with pressing and mounting fiscal problems—have rekindled interest in the empirical analysis of the key factors determining the occurrence of fiscal consolidations. Using discrete choice models, this paper examines the drivers of fiscal consolidation episodes in a sample of 148 EMDEs between 1980 and 2019, with a focus on Latin American and Caribbean countries. Inequality does not seem to drive consolidations—which are more likely during good economic times—while more informality increases the probability of their occurrence and corruption decreases it. In turn, when examining the drivers of successful consolidations, larger income inequality acts as a boost, while informality is a hinderance. In fact, while the size of the public investment multiplier in Latin America and the Caribbean is larger than in other regions, when informality is high, the multiplier effect is reduced to a much lower and insignificant magnitude. Results are robust to several sensitivity and robustness tests.”

From a paper by Óscar Peláez-Herreros:

“The paper develops a decomposition of the Okun coefficient that allows us to know what part of its value is due to the direct effect of real GDP growth on the unemployment rate and what other part is due to the indirect effects through variations in: production per hour, hours worked per employed person, participation rate, and population. The procedure applies to the 38 OECD states with annual data from 1995 to 2019. The results show large differences between states in the Okun coefficients and in their component factors. However, there are also groups of countries that share dynamics. The advantage of the proposed technique is that it identifies the factors that cause differences and helps to adopt macroeconomic policies more appropriate to each case.”

From a paper by Magdalena Cornejo, Michelle Hallack, and David Matias:

“This paper examines the role of renewable electricity adoption in mitigating the impact of international fossil fuel price shocks on inflation in Latin America and the Caribbean (LAC), the region with the highest proportion of renewables in its energy mix. Utilizing data from 18 LAC countries spanning 2005 to 2021, we show that renewable electricity significantly reduces the transmission of fossil fuel price shocks to both energy-specific and overall inflation. Our findings indicate that countries with larger shares of renewable electricity generation experience notably smaller inflationary impacts in response to fluctuations in global oil prices. These results underscore the positive externalities of renewable energy investment, particularly its potential to reduce the transmission of global energy price volatility to local inflation.”

From a paper by Moayad Al Rasasi, and  Hussain Alramadan:

“This paper analyzes the symmetric and asymmetric effects of global food prices on domestic consumer prices in Saudi Arabia based on monthly data ranging from January 1990 to November 2023. The domestic consumer price data for Saudi Arabia were obtained from the International Financial Statistics of the International Monetary Fund, whereas the global food prices were downloaded from the Food and Agriculture Organization of the United Nations. Unlike in previous studies that focused on this topic in Saudi Arabia, this paper accounts for nonlinearity in the analysis. First, on the basis of the linear autoregressive distributed lag model, the empirical results show that increasing global food prices by 1% pushes domestic prices higher by 0.56%. Moreover, with respect to nonlinearity, the estimated results based on the nonlinear autoregressive distributed lag model reveal that the impact of increasing global food prices is greater and more significant than the insignificant effect of falling global food prices. In other words, a rise in global food prices by 1.0% leads to a substantial increase in domestic prices by approximately 0.47%. However, falling global food prices do not substantially impact domestic prices.”