The Unassuming Economist

From a paper by M. Krishna Naidu, and Dasari Rajesh Babu:

“India’s monetary buildup and structure changed substantially with the official adoption of Flexible Inflation Targeting in 2016, formalised through amendments to the Reserve Bank of India Act and operationalised by a statutory six-member Monetary Policy Committee. In this paper, we conduct a systematic conceptual analysis of the multifaceted impact of FIT on macroeconomic consistency in India, including price stability, output dynamics, exchange rate behaviour, monetary transmission efficacy, fiscal-monetary coordination, and the formation of inflation expectations. The study uses longitudinal data of macroeconomic parameters over 12 years (2012-2024). The methodology is a mixed-methods conceptual framework that includes descriptive statistical analysis, regime-phase comparisons, six-channel transmission mapping, and international bench marking with 7 inflation-targeting economies. The analysis shows a large fall in headline Consumer Price Index (CPI) Inflation from an average of 9.85% (2012-2016) before the IT. The paper’s conceptual contribution is the development of a cohesive analytical framework that concurrently assesses aims, scope, limitations, transmission channels, and cross-national insights. The findings affirm that India’s FIT is a conditionally effective regime—effective in managing expectations and reducing Inflation, but requiring institutional complementary to achieve the full macroeconomic stability benefit.”

From a paper by Chandan Sethi, and Bibhuti Ranjan Mishra:

“This paper examines whether inflation targeting (IT) policies improve the macroeconomic performance of 28 Asian economies from 1998 to 2023. Specifically, it assesses the impact of IT on inflation, GDP growth, exchange rates and unemployment. The study employs two econometric methods: propensity score matching (PSM) and panel-corrected standard errors (PCSE). The findings suggest that adopting an IT regime can significantly reduce inflation and exchange rate volatility. However, IT has no significant effect on GDP growth. In contrast, results reveal a positive, statistically significant impact on unemployment, suggesting potential short-run labour-market trade-offs associated with disinflationary policies. These findings contribute to the ongoing debate on the effectiveness of IT by highlighting that its impact on real economic variables may vary across estimation approaches and underlying assumptions.”

From a paper by Jan Čapek | Jakub Chalmovianský | Vlastimil Reichel:

“This study systematically evaluates forecasting performance of 11 Dynamic Stochastic General Equilibrium (DSGE) and 2 Bayesian Vector Autoregression (BVAR) models during recessions and expansions in the US and the euro area. Results show that no single model dominates: parsimonious models perform well in stable periods and at short horizons, while richer DSGE specifications with financial frictions, flexible inflation targeting, or labor market dynamics improve forecasts during recessions. BVARs excel in interest rate forecasting, especially in expansions. Crisis‐specific extensions, such as COVID‐related shocks, yield temporary gains. Forecast accuracy depends on the economic state, variable, horizon, and evaluation metric, underscoring the need for a diversified, context‐dependent modeling toolkit.”

From a paper by Davide Furceri, Georgios Karras, and Khatereh Yarveisi:

“We use the World Uncertainty Index (WUI) to estimate the dynamic effects of uncertainty on the current account balance for a large sample of 143 developed and developing countries, during the period 1973–2021. Our analysis shows that higher uncertainty is associated with an increase in the current account balance which reflects both increased saving and reduced investment. These effects are sizable and statistically significant, peaking one year after the uncertainty shock, and gradually dying out in the long run. The effect varies across countries, being larger in countries characterized by lower social expenditure, less developed financial markets, and during periods of high financial stress.”

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.”