The Unassuming Economist

From a paper by Christopher Erceg, Marcin Kolasa, Jesper Linde, and Andrea Pescatori:

“Many countries have used energy subsidies to cushion the effects of high energy prices on
households and firms. After documenting the transmission of oil supply shocks empirically in the United States and the Euro Area, we use a New Keynesian modeling framework to study the conditions under which these policies can curb inflation. We first consider a closed economy model to show that a consumer subsidy may be counterproductive, especially as an inflation-fighting tool, when applied globally or in a segmented market, at least under empirically plausible conditions about wage-setting. We find more scope for energy subsidies to reduce core inflation and stimulate demand if introduced by a small group of countries which collectively do not have much influence on global energy prices. However, the conditions under which consumer energy subsidies reduce inflation are still quite restrictive, and this type of policy may well be counterproductive if the resulting increase in external debt is high enough to trigger sizeable exchange rate depreciation. Such effects are more likely in emerging markets with shallow foreign exchange markets. If the primary goal of using fiscal measures in response to spikes in energy prices is to shield vulnerable households, then targeted transfers are much more efficient as they achieve their goals at lower fiscal cost and transmit less to core inflation.”

From a paper by Yongjian Lyu, Heling Yi, Mo Yang, Yihan Zou, Ding Li, Zhilong Qin:

“Financial uncertainty shocks are emerging as potential drivers for the spillovers of risk originating from the oil market into the stock market, with the increasing financialization of the oil market. This paper explores this phenomenon and provides compelling findings. First, the oil market generates substantial risk spillovers to the stock market, reaching a peak amid the COVID-19 crisis. Second, according to the backtesting results, the ΔCoVaR values derived from the Student-t Copula model reflect the true level of such risk spillovers. Third, shocks to financial uncertainty increase systemic risk by causing risk to spill over from the oil to the stock market, with larger spillovers occurring during periods of increased economic vulnerability. Finally, financial uncertainty shocks are the fundamental drivers of variance changes in risk spillovers, making a greater contribution than macroeconomic uncertainty shocks, according to the time-varying forecast error variance decomposition.”

From a paper by Isah Wada:

“Human economic activities, aimed at rapid growth, contribute significantly to greenhouse gas emissions, thereby accelerating climate change and raising concerns about sustainability, particularly in the context of the United Nations Sustainable Development Goals (UNSDGs). The study’s objectives align with UNSDG Goal 15, which seeks to minimise the impact of human activities on the environment and halt further environmental degradation. This study explores the structural shifts in greenhouse gas emissions in Japan by examining the relationship between total greenhouse gases, natural resource rents, real income, and population from 1970 to 2018. Utilising the novel autoregressive distributed lag (ARDL) model and dynamic quantile ARDL techniques, the analysis reveals an annual equilibrium convergence rate of approximately 34%–36%. The multivariate VECM causality system identifies significant long-run causal relationships, indicating the influence of these covariates on maintaining a stable equilibrium. In the short run, one-way causality is observed from resource rents, per capita income, and squared per capita income to total emissions. Long-term findings suggest that reductions in natural resource rents, per capita GDP, and population growth contribute to improved atmospheric quality. The results support the Environmental Kuznets Curve (EKC) hypothesis, confirming the existence of an ‘inverted U-curve’ for Japan. Furthermore, the robust quantile ARDL aligns these findings with the net probabilistic effects in both short- and long-term scenarios. By applying innovative accounting decomposition frameworks, the study shows that changes in greenhouse gas emissions, resource rents, and population growth consistently lead to reduced emissions in Japan. Overall, these findings provide empirical support for Japan’s goal of achieving net carbon neutrality by 2050 and underscore the importance of adhering to transformative policy measures.”

From a paper by Priyanka Banerji and Mohammed B. Shettima:

“The most demanding sector in today’s era is the energy sector. India is now the third highest consumer of crude oil in the world, after the USA and China, with 4.6% share of world total according to Worldometer. Thus, when there is an increase in the oil prices, the Indian economy suffers relentlessly. This paper seeks to carry out a study on the volatility of oil price and the real exchange rate and its effects on Indian rupee and the US dollar. The study will make use of the Garch analysis model to analyse and predict the volatility of the two variables (crude oil prices and exchange rate). Empirical findings points out an asymmetrical relationship between crude oil prices and dollar exchange rate. Recommendations are made to the Indian Government to provide effective energy security source by establishing strategic crude oil storage facilities so as to reduce importation of crude oil.”

From a paper by Alkis Blanz, Ulrich Eydam, Maik Heinemann, Matthias Kalkuhl:

“Since market-based climate policies such as carbon pricing affect the cost of using fossil resources, rule-based climate policy adjustments in response to fossil energy price shocks may promote macroeconomic stabilization. This raises the question of whether climate policy should adapt to short-term fluctuations in fossil energy prices. We examine this question by employing a dynamic stochastic general equilibrium (DSGE) model calibrated for the German economy. Our results indicate that the macroeconomic and welfare impacts of rule-based carbon pricing adjustments depend on the share of recycled revenue. If revenue is fully absorbed, lowering emissions prices can stabilize the economy in response to rising energy prices. Conversely, if revenue is at least partially recycled, maintaining a stable carbon price will improve overall welfare. With a stable carbon price, revenue recycling acts as insurance against fluctuating energy prices. This result remains robust across several robustness checks.”