The Unassuming Economist

From a paper by Luis I. Jacome, Nicolas E. Magud, Samuel Pienknagura, and Martın Uribe:

“We explore the historical link between populist regimes, fiscal monetization, and inflation, and how these links affect monetary policy in the 21st century. Using data for a large set of advanced economies and emerging markets since 1960, we show that, historically, left-leaning populist regimes are linked to increases in central bank lending to the central government, a gauge of deficit monetization. In turn, central bank lending is associated with marked increases in inflation. We show that past exposure to populism that relied on deficit monetization affects the conduct of monetary policy today. Countries with a history of deficit monetization and left-wing populist regimes systematically respond more strongly to deviations of inflation expectations from target. This effect persists even after controlling for the direct effect of past inflation on monetary policy rules. In the context of the literature of experienced learning, this novel finding sheds light on the persistence of past populist policies—central banks operating under the shadow of past populist regimes that relied on inflation-prone deficit monetization continue today needing to send stronger signals of their independence and commitment to price stability to effectively anchor inflation expectations.”

From a paper by Michael D. Bauer, Diego R. Känzig, and Glenn D. Rudebusch:

“Putting a price on carbon emissions helps mitigate climate change but may also raise overall price
inflation. Using high-frequency event studies based on regulatory news in the European carbon market,
we show that carbon price surprises generate significant increases not only in energy futures prices,
but also in inflation swap prices and breakeven inflation rates. These measures of market-based
inflation expectations respond positively at both short and long horizons, with significant effects up to
ten years out. Such long-lived inflationary consequences of climate policy are relevant for central
banks. However, despite the sustained increases in market-based inflation expectations, forwardlooking
nominal interest rates show no meaningful response to the carbon policy shocks, suggesting
that investors do not anticipate that the European Central Bank will lean against the inflationary effects
of higher carbon prices.”

From a paper by Eliene de Sá Farias, Leonardo Bornacki de Mattos, and Luciano Ferreira Gabriel:

“Global financial disturbances challenge countries’ ability to maintain stable economic performance, raising questions about the effectiveness of monetary policy frameworks. This study evaluates how inflation-targeting (IT) countries respond to external spillovers compared to non-IT economies. Using entropy balancing combined with a differences-in-differences strategy for 1980–2019, we address self-selection and estimate causal effects on real per capita income, debt-to-GDP, and employment. The results indicate that IT adoption may involve higher employment costs under shifting global conditions, while effects on output and public debt vary across income groups. Overall, the findings suggest that IT economies display heightened vulnerability to external spillovers.”

From a paper by Samina Iqbal, and Muhammad Faisal Khan:

“Inflation targeting (IT) has emerged as a dominant monetary policy framework adopted by central banks to enhance price stability and macroeconomic credibility. This study empirically examines the impact of inflation targeting on macroeconomic performance, focusing on inflation control, output stability, and economic growth. Using cross-country evidence from inflation targeting and non-inflation-targeting economies, the analysis evaluates whether IT frameworks deliver superior macroeconomic outcomes. The findings suggest that inflation targeting is associated with lower inflation volatility and improved policy transparency, though its effectiveness depends heavily on institutional strength, fiscal discipline, and financial market development. The study contributes to ongoing policy debates by highlighting both the benefits and limitations of inflation targeting in emerging and developing economies.”

From a paper by Surjit S. Bhalla, Karan Bhasin, and Prakash Loungani:

“There seems to be a consensus that the inflation targeting framework adopted in India in 2016 has been successful in taming inflation. A comprehensive analysis of inflation targeting should be based on the impact on inflation dynamics, expectations and implications for growth. We illustrate the strong downward time-trend in India’s inflation dynamics coinciding with the inflation targeting regime. Trend inflation levels in India and other emerging market economies also suggest a downward trajectory regardless of the adoption of inflation targeting. Thefore, it is difficult to conclusively establish that adoption of inflation targeting in India led to a moderation in inflation or anchoring of inflation expectations. On expectations, there is some evidence of anchored household expectations, however, this anchoring predates the formal adoption of inflation targeting. Long-term expectations in India have remained firmly anchored since early 2000s. In terms of growth, the high real interest rates policy followed during the initial years of inflation targeting to establish credibility of IT regime adversely affected India’s growth dynamics.”