The Unassuming Economist

From a paper by Karan Bhasin, and Prakash Loungani:

“This paper introduces a hierarchical Large Language Model (LLM) framework for the automated identification of narrative fiscal shocks. We develop a multi-stage architecture to extract austerity episodes from IMF Article IV reports (2004–2020) for 17 OECD countries. Relative to manual coding, our approach improves replicability and auditability by generating a documented sequence of classification steps. Benchmarking against Adler et al. (2024), we find that the LLM-based classification aligns closely with the narrative benchmark, while differing on a small subset of episodes. Local projection estimates indicate that LLM-identified shocks are associated with smaller estimated multipliers than the narrative benchmark, with the difference linked in large part to differences in shock persistence and endogeneity.”

From a paper by Georgios Chortareas, Anastasios Evgenidis, and Apostolos Fasianos:

“This paper explores whether the transmission from monetary policy to income inequality may depend on the adoption of Inflation Targeting (IT) regimes. Using an interacted panel VAR, we find that expansionary monetary policy shocks reduce income inequality in countries that have switched to IT regimes. In contrast, in non-IT regimes the same shock is associated with a short-lived increase in income inequality. A decomposition of transmission channels indicates that the employment channel is the primary equalizing mechanism under IT, as expansionary shocks generate stronger improvements in labor market conditions. The financial channel operates in the opposite direction but is quantitatively smaller. We further show that the inequality-reducing effects of monetary policy are not replicated by other institutional features often associated with credibility, such as central bank transparency or central bank independence. Our findings are robust to alternative identification schemes, broader classifications of IT regimes, controls for self-selection into IT adoption, and to conditioning on different inflation environments.”

From a paper by M. Shabri Abd. Majid, F. Faisal, Heru Fahlevi, Maulidar Agustina, A. Azhari, Y. Yahya & Z. Zulkifli:

“Micro, small, and medium enterprises (MSMEs) are widely recognized as key drivers of entrepreneurship and inclusive growth; however, their effectiveness in reducing poverty depends more on the quality of productivity improvements than on the expansion of firm numbers alone. This study investigates how entrepreneurial productivity, measured by total factor productivity (TFP) and its components—efficiency change and technological progress—affects poverty both directly and through the sequential roles of human development (HDI) and economic growth. Using 2,070 panel observations from six sectors across 23 districts in Aceh, Indonesia (2010–2024), productivity is estimated through the Malmquist Index within a Data Envelopment Analysis (DEA) framework. Direct, single, and sequential mediation effects are examined using the Baron and Kenny approach and estimated via Estimated Generalized Least Squares (EGLS) with Seemingly Unrelated Regression (SUR) adjustments. The findings reveal heterogeneous effects across productivity components, highlighting asymmetric transmission mechanisms in which different dimensions of productivity influence poverty through distinct pathways. Increases in TFP and technological progress are associated with reductions in poverty (β ≈ 0.135–0.311), whereas efficiency change is linked to higher poverty levels (β ≈ − 0.117 to − 0.226), reflecting short-term adjustment costs from structural changes. Economic growth emerges as the primary transmission channel, while HDI does not exert a direct effect but significantly strengthens the impact of productivity when it precedes growth in the causal sequence. The strongest poverty reduction occurs when productivity first improves human development and subsequently stimulates economic expansion. Technological progress exhibits mixed effects depending on the mediation pathway, indicating uneven distributional outcomes. Overall, the results suggest that productivity gains do not automatically lead to inclusive welfare improvements. Policy efforts should therefore prioritize innovation-driven and stable productivity growth while mitigating the adverse social effects of abrupt efficiency adjustments. This study contributes by demonstrating that different dimensions of entrepreneurial productivity generate distinct development outcomes and by proposing a sequential mediation framework that explains why some productivity gains alleviate poverty while others intensify it.”

From a VoxEU post by Pablo García Guzmán, Anton Grahed, Beata Javorcik, and Helena Schweiger:

“The pursuit of export-led growth through manufacturing has become increasingly difficult in the face of growing global competition. A shift towards service export-led growth offers new opportunities, but it also demands investments in human capital, infrastructure, and institutional capacity. This second column in a three-part series explores the emerging service export model, its potential for growth, and the policy strategies needed for countries in the EBRD regions to successfully navigate this transition.”

From a paper by Hao-Chang Yang, Gen-Fu Feng, and Xia Chen:

“This study uses unbalanced panel data from 43 developed and emerging market economies from 1985 to 2021 to examine the different effects of geopolitical risks on cross border capital flows. The findings reveal the following: First, developed economies are largely insulated from geopolitical shocks and exhibit a statistically significant risk aversion effect only in the low tail of the capital flow distribution, primarily preventing severe capital outflows during turbulent periods. Second, emerging and developing economies experience sharp declines in FDI and significant increases in FPI when geopolitical risks rise, reflecting speculative hot money seeking risk premiums rather than fundamentals driven capital. Third, a structural break analysis reveals that the 2008 financial crisis shifted global capital logics, causing mature economies to lose their immunity to FDI withdrawals while emerging markets increasingly attract FDI through supply chain restructuring. Fourth, heterogeneity analysis shows that higher FinTech penetration in emerging markets unexpectedly increases the negative effect of geopolitical risks on FDI by lowering withdrawal costs, whereas capital account restrictions mitigate these declines. These findings underscore how geopolitical fragmentation reshapes the composition of global finance, suppressing productive capital and fueling speculative volatility.”