The Unassuming Economist

From a paper by Aariya Sen, and Rudra Sensarma:

“Recent studies have examined the impact of monetary policy on economic inequality, but have focused on advanced economies and wealth inequality. We analyse the impact of monetary policy on income and consumption inequality estimated from a household level dataset in India. We apply Sign-Restricted VAR and Local Projection models to monthly data for 2014–2023. We show that contractionary monetary policy worsens consumption inequality while reducing income inequality. We also find that while restrictive monetary policy reduces capital income inequality and wage income inequality it widens the gap between capital and wage income earners. Moreover, monetary policy exhibits asymmetric effects, suggesting trade-offs for the central bank.”

From a paper by Kristin Forbes, Jongrim Ha, and M. Ayhan Kose:

“Central banks often face tradeoffs in how their monetary policy decisions impact economic activity (including employment), inflation and the price level. This paper assesses how these tradeoffs have evolved over time and varied across countries, with a focus on understanding the post-pandemic adjustment. To make these comparisons, we compile a cross-country, historical database of “rate cycles” (i.e., easing and tightening phases for monetary policy) for 24 advanced economies from 1970 through 2024. This allows us to quantify the characteristics of interest rate adjustments and corresponding macroeconomic outcomes and tradeoffs. We also calculate Sacrifice Ratios (output losses per inflation reduction) and document a historically low “sacrifice” during the post-pandemic tightening. This popular measure, however, ignores adjustments in the price level—which increased by more after the pandemic than over the past four decades. A series of regressions and simulations suggest monetary policy (and particularly the timing and aggressiveness of rate hikes) play a meaningful role in explaining these tradeoffs and how adjustments occur during tightening phases. Central bank credibility is the one measure we assess that corresponds to only positive outcomes and no difficult tradeoffs.”

From a paper by Ahmet Niyazi Özker:

“This study examines the possible inflation scale effects of inflation rates observed in emerging market economies on countries with similar economic structures to Turkey. For this purpose, the role of inflation in the emergence process of emerging market economies and the potential fiscal impact costs of this process on Turkey, especially on public finance and tax burden, are analysed. The study focuses on the approach that countries among emerging market economies are in an inflationary interaction through mutual scale effects, and that this interaction mutually increases their cost burdens. The research also tries to reveal whether these increasing fiscal burdens create a budgetary drag effect in Turkey and investigates at what scale levels these effects occur. In addition, the study also evaluates the financial consequences of the scale effects brought about by economic growth in Turkey as related to the inflation rates in Turkey. The findings in the survey reveal that inflation in Turkey is primarily structural, and an inflationary process prevails in which cost inflation remains relatively secondary. In other words, this structural reality shows that the Turkish economy is directly affected by structural inflation dynamics that are effective on a global scale and that this effect also causes an increase in financial burdens at the local level. When this situation is evaluated in terms of the fiscal tax burdens related to emerging markets, specifically in Turkey, it is understood that inflation is shaped not only by national internal dynamics but also by similar structural economic problems at the global level, and that the pressures to increase the inflation rates in Turkey also bring the potential for a possible fiscal drag on the agenda.”

From a paper by Xianbo Zhou, Songliang Han, Yingming Wu, and Guangsu Zhou:

“This paper uses micro survey data from China Household Finance Survey (CHFS) 2011 to 2019 and the staggered DID approach to study the impact of the loose “universal two-child” policy on Chinese household consumption inequality. The results show that the implementation of the policy can significantly reduce the relative consumption deprivation of policy-responsive families, and the effect is more significant for relatively vulnerable households, for example, those located in rural areas or western regions, with “outside-the-system” jobs or low- to middle-income levels. Mechanistic analysis revealed that the differentiated effects of the policy on the consumption of households with different income strata contributed to the reduction in consumption inequality. Furthermore, the policy alleviates consumption inequality through its negative effect on luxury consumption and positive effects on subsistence and development consumption. The mitigating effect of the two-child policy on consumption inequality is robust according to various robustness tests. This study has implications and policy significance for the implementation of China’s current three-child policy and the adjustment of future fertility policies, as well as narrowing the gap between the rich and the poor and achieving the goals of common prosperity and equalization.”

From a paper by Suale Karimu, and Attahir B. Abubakar:

“Sub-Saharan African countries have experienced significant structural change and economic growth in recent decades; however, inequality levels remain high, raising concerns that the growth is not inclusive enough to reduce inequality levels. This study explores the effect of economic growth and structural change on income inequality using a panel dataset of 40 sub-Saharan African countries over the period 2001–2015. The study employs the iterated Generalized Method of Moment (GMM) estimator for analysis. The findings suggest that although increased income levels in the region fuel inequality, the transition of the economies towards the services sector could reduce income inequality. However, the overall contribution of structural change to reducing inequality levels has been minimal suggesting that the growth experiences of the region, especially over the last two decades, may not have been inclusive; hence, the need for enhanced redistributive policies to deepen inclusivity of the growth process.”