The Unassuming Economist

From a paper by Sylvester C. W. Eijffinger, and Jakob de Haan:

“Thirty years ago, when we wrote our Princeton essay about the political economy of central bank independence, the theoretical and empirical arguments for independent central banks seemed to be obvious (Eijffinger and de Haan, 1996). Nowadays it seems that these arguments are questioned by many politicians.
According to Rogoff (2019), “central bank independence is rarely granted by constitutional decree, and even where it is, the letter of the law has little meaning if political support is lacking”. As Rogoff notes, if monetary policy is politicized, once inflation rises, it will be very difficult to bring it under control and to protect monetary policy from further political interference. Some recent examples of central banks where independence and credibility have been severely compromised and where inflation and interest rates have drifted away from healthy levels should serve as a useful reminder, e.g. Argentina, Türkiye, Venezuela, and Zimbabwe. Other authors support this view and relate it to the limited mandate for the central bank in the past. Wachtel and Blejer (2020) asked whether statutory independence implied a limited mandate for the central bank, given the requirement in democratic societies that independent central bankers be held accountable for their activities, meaning that the results of their actions should be easily comparable with those mandated. The authors asked whether this limited mandate, in turn, led central bankers to ignore financial stability concerns. Reasoning along similar lines, Tucker (2018) asked whether central banks’ involvement in the conduct of macro-prudential policies rendered their independence problematic. Indeed, central banks may be confronted with the trade-off between their monetary policy and macro-prudential responsibilities in the long run.
Legal independence is a necessary but not sufficient requirement for actual central bank independence. Forder (2022) emphasizes that practice may differ from the letter of the law, that is, politicians may be able to exert pressure on central bankers: “It is the structure of incentives and constraints that determines the effect of any rule, not the legislators’ intent in drafting it” (p. 552). However, giving up legal independence is not the proper way forward. As Issing (2013, p. 282) put it: “If the central bank’s independent status is exposed to strong political opposition, giving up independence de facto might be seen as an option to preserve de jure independence. However, this would come at the expense of undermining the fundament of independence for the central bank”.”

From a paper by Claus Brand, Gavin Goy, and Wolfgang Lemke:

“Using a novel macro-finance model we infer jointly the equilibrium real interest rate r, trend inflation, interest rate expectations, and bond risk premia for the United States. In the model r plays a dual macro-finance role: as the benchmark real interest rate that closes the output gap and as the time-varying long-run real interest rate that determines the level of the yield curve. Our estimated r* declines over the last decade, with estimation uncertainty being relatively contained. We show that both macro and financial information is important to infer r*. Accounting for the secular decline in interest rates renders term premia more stable than those based on stationary yield curve models.”

From a paper by Sezer Ferhad:

“The International Monetary Fund is one of the most important international financial institutions, which aims to protect and ensure the development of the global financial system as well as the development of developing countries. The IMF has been the go-to source for help during many times of crisis, and the latest financial and economic crisis following the COVID-19 pandemic was no different. Many countries required aid and policy guidance in order to ensure a fast and strong recovery from the pandemic, and the IMF assumed the role to provide the much-needed support tied to its conditionalities. The aid provided by the IMF had a significant impact on many aspects of economies and led to a considerably quicker recovery, to the surprise of many. The impact of the IMF with regard to rebuilding market trust and financial stability led to a commendable recovery. However, there were several shortcomings as well. The opportunity provided by the need for an economic recovery to reshape economics into a more inclusive, green economic understanding and to reduce inequalities was underutilized, and the characteristic austerity policies of the Fund continued to create new struggles for developing countries with vulnerability. The aim of this paper is to understand the role and impact of the IMF during the post-pandemic economic recovery.”

From a paper by Anja Janischewski, Katharina Bohnenberger, Matthias Kranke, Tobias Vogel, Riwan Driouich, Tobias Froese, Stefanie Gerold, Raphael Kaufmann, Lorenz Keyßer, Jannis Niethammer, and Christopher Olk, Matthias Schmelzer, Aslı Yürük, and Steffen Lange:

“Many socio-economic systems require positive economic growth rates to function properly. These growth dependencies pose serious challenges given uncertainty about future growth rates and the role of economic growth as a driver of environmental crises. Thus, identifying and transforming socio-economic systems that currently rely on growth for their adequate functioning is a crucial step towards effective sustainability transformations. To facilitate conceptual clarity, we propose a general definition and framework for operationalizing the concept of “growth dependence” through four elements: (1) the system under investigation, (2) the unit of growth measurement, (3) the meaning of “growth”, and (4) the functions or properties of the system relevant for human well-being. We illustrate the impact of varieties in definitions on assessment outcomes by applying the framework to areas widely seen as growth-dependent: labor markets, social insurance and public finance. Our framework helps researchers to develop a more coherent understanding of growth dependence, a prerequisite for assessing policy options towards growth independence.”

From a paper by Lisa Capretti, and Lorenzo Tonni:

“The empirical literature on the relationship between income inequality and economic growth has
produced highly heterogeneous and often conflicting results. This paper investigates the sources of this heterogeneity using a meta-analytic approach that systematically combines and analyzes evidence from relevant studies published between 1994 and 2025. We find an economically small but statistically significant negative average effect of income inequality on subsequent economic growth, together with strong evidence of substantial heterogeneity and selective publication based on statistical significance, but no evidence of systematic directional bias. To explain the observed heterogeneity, we estimate a meta-regression. The results indicate that both real-world characteristics and research design choices shape reported effect sizes. In particular, inequality measured net of taxes and transfers is associated with more negative growth effects, and the adverse impact of inequality is weaker – or even reversed – in high-income economies relative to developing countries. Methodological choices also matter: cross-sectional studies tend to report more negative estimates, while fixed-effects, instrumental-variable, and GMM estimators are associated with more positive estimates in panel settings.”