The Unassuming Economist

From a paper by Gokcen Ogruk Maz, Sinan Yildirim, Mjellma Carabregu-Vokshi, and But Dedaj:

“This study examines the effect of inflation targeting adoption on stock market capitalization in 39 developing countries from 1995 to 2023. Baseline propensity score matching with two-way fixed effects shows positive but sometimes insignificant effects. Robustness checks excluding the 2008–2009 Global Financial Crisis, hyperinflation episodes, and both combined often yield larger and more significant estimates. To address concerns about staggered policy adoption, we use the Staggered Difference-in-Differences estimator, finding that significance emerges five to ten years after adoption. Results suggest IT supports financial development by enhancing investor confidence and macroeconomic stability, especially in lower-volatility environments.”

From a paper by Gabriel Caldas Montes, Helder Ferreira de Mendonça, and Matheus Rosa Ribeiro:

“Fiscal transparency is essential for the expectations formation process, as governmental fiscal opacity often leads to forecast errors due to insufficient information. This study examines the relationship between fiscal unpredictability, particularly related to the primary budget, and the lack of consensus in expectations for external sector variables in Brazil. Specifically, based on several regression models considering different expectations horizons, we investigate whether fiscal opacity generates a lack of consensus in expectations for the trade balance, foreign direct investment and exchange rate. Additionally, we propose a composite indicator for the lack of consensus in external sector expectations derived from principal component analysis of related variables. The findings indicate that fiscal opacity increases the lack of consensus in expectations for the external sector. In brief, our results highlight the need for greater fiscal transparency to reduce uncertainty and improve consensus in economic expectations, particularly in expectations for external sector variables.”

From a paper by Karan Bhasin, Kajal Lahiri and Prakash Loungani:

“This paper estimates uncertainty shocks using density forecasts from the Reserve Bank of India’s Survey of Professional Forecasters (2008–2023). These forecasts enable a direct measurement of unobservable uncertainty in real-time, as the first difference in the second moment of the densities. In addition, we propose a forecast calibration test based on the predictive sequential principle. We report five key findings: (i) macroeconomic uncertainty in India has been on a decline since 2008; (ii) shocks to uncertainty derived from density forecasts compare favorably with other popular measures, viz. Economic Policy Uncertainty and VIX; (iii) prequential tests indicate forecasts to be calibrated; (iv) uncertainty is affected primarily by negative news and is variance rational, and (v) it captures demand shocks even after controlling for global uncertainty shocks, in contrast to EPU and VIX, which are primarily driven by supply shocks. Distinguishing these shocks is crucial for optimal monetary policy.”

From a paper by Ebrahim Merza, Mohammad Alawin, and Muna Husain:

“Inflation volatility remains one of the most important challenges for policymakers, households, and businesses alike. When prices fluctuate unpredictably, people lose confidence in their ability to plan ahead. Households struggle to budget and save, firms hesitate to invest and hire, and policymakers face higher pressure to act without clear guidance. Recent global crises—whether energy shocks, food price surges, or supply chain disruptions—have shown how quickly instability spreads across borders. This raises a central question: why are some countries more vulnerable to inflation volatility than others? Following Aisen and Veiga (2006), this study addresses that question by examining the determinants of inflation volatility across three income-based groups: lower-middle-income, upper-middle-income, and high-income economies, using panel data covering the period 1996-2024. Using both fixed and random-effects models, we find that inflation persistence and high inflation levels are the strongest drivers of volatility, while higher income levels and stronger governance support price stability. External shocks—such as trade openness, oil price fluctuations, and exchange-rate misalignments—show varied effects across income groups, emphasizing the importance of context-specific responses. The findings suggest that when countries invest in credible institutions and reliable policies, they can transform external shocks from being destabilizing forces into manageable challenges.”

From a paper by Thomas Chalaux, Dave Turner and Steven Cassimon:

“Recent research by authors from the IMF, ECB and the Bank of England has identified Random Forests as the most effective method for predicting crisis episodes and superior to the more traditional approach of probit/logit modelling. We challenge that finding when predicting recessions for 20 OECD countries. A customised algorithm that selects probit models, matches the performance of Random Forests in out-of-sample quarterly predictions using real-time data over a two-year horizon, including the period of the Global Financial Crisis. This enhanced performance is attributed to a “wisdom of crowds” feature whereby predictions are averaged from many well-fitting probit equations, comparable to Random Forests averaging many trees. Both country-specific and pooled Random Forests are estimated, and, although the latter has a superior out-of-sample performance, a disadvantage of the pooled approach is that recession risks are highly correlated across countries and rarely very elevated, so that it is unlikely that a recession is ever ‘more likely than not’. The estimation framework is also separately applied to 8 consecutive quarterly horizons and demonstrates that different explanatory variables matter at different horizons; activity variables are more important for immediate quarters, but financial cycle variables (especially credit and house prices) dominate at horizons beyond that.”