The Unassuming Economist

From a paper by Andrew Jackson, Romain Svartzman, David Barmes and Luiz Awazu Pereira da Silva:

“Climate change and volatile fossil fuel prices increasingly drive macroeconomic and price instability. A successful green transition is a precondition for price stability in the long term but could generate inflationary pressures over shorter time horizons. A restrictive monetary response to such pressures would disproportionately affect the capital-intensive green investment needed for a transition. To maintain price stability without compromising the green transition, we propose adaptive inflation targeting, adjustments to monetary operations, and an institutional architecture for systematic monetary–fiscal coordination.”

From a paper by Luca Bettarelli, Davide Furceri, Prakash Loungani, Jonathan D. Ostry, and Loredana Pisano:

“If economic activity is considered the primary driver of climate change through emissions of carbon dioxide, then supporting economic growth and fighting emissions would appear to be at odds. However, the process of economic development may itself foster complementarity between GDP growth and emissions reductions. Such complementary in the relationship between economic development and emissions reduction might reflect changes in the industrial composition of economic activity, technological advancements or environmental consciousness. 

This view is in line with the Environmental Kuznets Curve (EKC) hypothesis: that per-capita income growth is associated with increases in carbon emissions up to a certain threshold of economic development, but beyond that threshold, higher per-capita incomes are associated with lower emissions per capita. The EKC hypothesis, suggests that economic development is actually a pathway to environmental improvements. 

We test the EKC hypothesis for 191 countries over 1989-2022, enabling us to study the overall validity of the EKC hypothesis at global level. Moreover, by interacting GDP per capita with an index measuring the stringency of climate policies, we shed light on whether and how climate policies mediate the impact of GDP on emissions. We find that emissions respond to increasing per-capita income levels nonlinearly, with a turning point at about $25,000 on average. Importantly, we show that climate policies shape the relationship between income and emissions by making the EKC lower and flatter, thus favouring a decoupling between emissions and economic activity. Our results have important policy implications, as they identify economic development as a pathway to environmental improvements. We also show that environmental policies are an essential ingredient to achieve decoupling of emissions and economic output over the longer term.”

From a paper by Martin T. Bohl, Niklas Humann, and Pierre L. Siklos:

“This survey synthesizes evidence on the bidirectional links between commodity markets and monetary policy. On the
commodities-to-policy side, we review how shocks to energy, food, and metals pass through to inflation, inflation expectations,
economic activity, and financial stability in state-dependent ways that vary by shock type, exposure, and policy regime. We
complement the literature with an analysis of central-bank speeches, showing how officials classify commodity shocks and how
these framings map into policy stances. On the policy-to-commodities side, we organize evidence on the transmission of monetary
policy to commodity markets via financial, real-economy, and expectations channels, highlighting heterogeneity across policy
instruments, commodities, and central banks. We emphasize how financialization tightens cross-asset linkages, raises leverage
and margin sensitivity, and amplifies discount-rate and risk-taking mechanisms. Overall, commodities are best treated as policy sensitive state variables, not exogenous disturbances, with implications for policy design, central bank communication, and
international monetary spillovers.”

From a paper by Claudia Amadei, Cesare Dosi & Francesco Jacopo Pintus:

“Declines in the energy intensity of national gross domestic product cannot be simply taken as evidence of a country’s contribution to global decarbonization, notably when they come from structural changes that relocate energy-intensive production abroad. Here we analyze the role of offshoring in shaping energy intensity trends in a panel of 15 countries of the Organisation for Economic Co-operation and Development between 1970 and 2021. Using both a decomposition analysis and a structural econometric model, we show that shifts in the composition of national output not mirrored by equivalent changes in domestic consumption patterns significantly and persistently reduce national energy intensity. These findings support the need to move beyond production-based climate metrics and to incorporate global supply chains for a more reliable assessment of national decarbonization pathways.”

From a paper by Andre Harrison & Jeremy Viele:

“We use a structural vector autoregressive (SVAR) model to study the effects of oil market shocks on US labor productivity and employment hours, where identification occurs through a combination of short- and long-run exclusion restrictions. The results show that labor productivity is responsive to all sides of the oil market, with employment hours responding only to demand-side forces. Further, oil market shocks explain roughly 25% of the long-run variation in both variables. Among oil market shocks, oil-specific demand shocks contribute to most of the historical fluctuations in labor productivity, while aggregate demand shocks matter most for fluctuations in employment hours.”