The Unassuming Economist

From a book chapter by Sylvio Kappes, Louis-Philippe Rochon, Guillaume Vallet:

“With the recent resurgence of inflation — which had been dormant for the better part of the last 3 decades — monetary policy has once again taken centre stage as the only possible policy solution to inflation or the only game in town. Fiscal policy was never considered, and there has been no mention of the possibility of using fiscal policy to fight inflation except in some heterodox circles. As such, the entire responsibility to fight inflation was laid at the feet of independent central banks.”

From a paper by João Tovar Jalles, and André Teixeira:

“This paper explores the impact of fiscal consolidations on banking behavior, focusing on efficiency and stability. Using a panel dataset covering 194 countries from 1989 to 2020 and employing local projection methods, we find that fiscal consolidations improve bank stability at the expense of efficiency. The decline in efficiency is attributed to reduced operational income, while stability gains stem from improved asset quality and bolstered capital adequacy. The effects are heterogeneous: consolidations have a more substantial negative impact on efficiency in advanced economies, while stability improvements are more pronounced in emerging markets. The size and composition of fiscal adjustments also matter: tax-based consolidations favor stability more than expenditure-based ones. Robustness checks with alternative definitions of fiscal consolidations and non-linear models confirm these findings. The findings emphasize the importance of tailoring fiscal consolidations to country-specific factors to balance stability and efficiency in the banking sector.”

From a paper by Yoosoon Chang, Soyoung Kim, and Joon Y. Park:

“This paper investigates the interactions between macroeconomic aggregates and income distribution
by developing a structural VAR model with functional variables. With this novel empirical approach, we are able to identify and analyze the effects of various shocks to the income distribution on macro aggregates, as well as the effects of macroeconomic shocks on the income distribution. Our main findings are as follows: First, contractionary monetary policy shocks reduce income inequality when focusing solely on the redistributive effects, without considering the negative impact on aggregate income levels. This improvement is achieved by reducing the number of low and high-income families while increasing the proportion of middle-income families. However, when the aggregate income shift is also taken into account, contractionary monetary policy shocks worsen income inequality. Second, shocks to the income distribution have a substantial effect on output fluctuations. For example, income distribution shocks identified to maximize future output levels have a significant and persistent positive effect on output, contributing up to 30% at long horizons and over 50% for the lowest income percentiles. However, alternative income distribution shocks identified to minimize the future Gini index do not have any significant negative effects on output. This finding, combined with the positive effect of output-maximizing income distribution shocks on equality, suggests that properly designed redistributive policies are not subject to the often-claimed trade-off between growth and equality. Moreover, variations in income distribution are primarily explained by shocks to the income distribution itself, rather than by aggregate shocks, including monetary shocks. This highlights the need for redistributive policies to substantially alter the income distribution and reduce inequality.”

See here a PPT by Torsten Slok, Rajvi Shah, and Shruti Galwankar on quantifying the impact of DOGE and tariffs on GDP and inflation.

From a paper by Angela Okeke and Constantinos Alexiou:

“This paper examines the relationship between public debt levels and income inequality during periods of fiscal consolidation (austerity). Specifically, it investigates two key questions: (a) whether high public debt during fiscal adjustments exacerbates income inequality, and (b) whether the composition of these adjustments influences the debt–inequality link. To address these issues, we apply a panel threshold methodology using annual data from 16 OECD countries over the period 1980–2019. Our findings reveal that public debt significantly affects income inequality, with the impact intensifying during fiscal adjustments, particularly at moderate debt thresholds (30–60%). Furthermore, when comparing the effects of tax-based versus spending-based adjustments, the evidence shows that tax-based consolidations tend to produce more persistent negative effects on income inequality.”