The Unassuming Economist

From a paper by David Amaglobeli, Joaquim Guilhoto, Samir Jahan, Salma Khalid, Raphael Lam, Gregory Legoff, Brent Meyer, Xuguang Simon Sheng, Pawel Smietanka, Sonya Waddell, and Daniel Weitz:

“The energy price shock in 2022 led to government support for firms in some countries, sparking debate about the rationale and the nature of such support. The results from nationally representative firm surveys in the United States and Germany indicate that firms in these countries were generally resilient. Coping strategies adopted by firms included the pass-through of higher costs to consumers, adjustment of profit margins (United States) and investments in energy saving and efficiency (Germany). Firms in energy-intensive industries would have been significantly more affected if international energy prices were fully passed through to domestic prices in Europe. Survey responses further reveal that most firms are uncertain about the impact of recent policy announcements on green subsidies. Firms take advantage of fiscal incentives to accelerate their climate-related investment plans are often those that have previous plans to do so. These findings suggest better targeting and enhancing policy certainty will be important when facilitate the green transition among firms.”

From a paper by Fernando Avalos, Ryan Niladri Banerje, Matthias Burgert, Boris Hofmann, Cristina Manea, and Matthias Rottner:

“Major price increases in energy and food were key drivers of the 2021–22 inflation surge. These large supply-driven commodity price increases, occurring when inflation was already elevated in many countries, increased the risk of moving to a high-inflation regime. Central banks have tended to look through commodity price fluctuations due to their often transitory nature and the implied trade-off between inflation and output stabilisation in the case of supply-driven price shocks. Growing geopolitical disruptions, climate change and a bumpy transition to green energy threaten to make commodity price shifts larger and more frequent going forward. This potentially raises greater risks for price stability, thereby limiting the scope for monetary policy to look through them.”

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.”