The Unassuming Economist

From a paper by Suzana Cvijanović, Ivan Milenković, Vitomir Starčević:

“The paper compares the economic performance of countries that apply the monetary regime of inflation targeting (IT) and countries that apply alternative monetary regimes in the CESEE (Central, Eastern, and Southeastern Europe) region. The paper aims to assess whether the IT monetary regime has contributed to greater positive effects on economic performance in the group of countries that use inflation targeting as a monetary strategy compared to other groups of countries with alternative monetary strategies. The methodology of comparison was applied, namely the statistical technique Difference in Difference (DID), according to Ball and Sheridan (2005) and Goncalves and Salles (2008). After the introduction of IT, there was a fall in inflation rates (but the significance of IT is artificial) and a reduction in the volatility of inflation and gross domestic product (GDP), leading to a stabilisation of economic growth. The results of the analysis indicate that during the period of analysis (1990–2020), there was an improvement in economic performance after the introduction of inflation targeting in the group of countries that use that monetary strategy, but also in other groups of countries. However, the results show that economic performance is a little better in the group of countries that applied inflation targeting as a monetary regime.”

From a paper by Hitoshi Hirakawa:

“Since the 1990s, the importance of Information and Communications Technology (ICT)-enabled services/digitally deliverable services has steadily increased along with economic globalization. Until now, the driving force of the world economy has been world trade, mainly in goods. The digital economy has now arrived, with finance, telecommunications, software development, Business Process Outsourcing (BPO), and other service transactions becoming increasingly important, and Artificial Intelligence (AI) and big data becoming the greatest source of competitiveness. On the one hand, this economy has opened the way for some emerging and developing economies to develop through ICT and computer-based digital-based services trade, bringing great expectations to some emerging and developing economies. On the other hand, it has created increasingly difficult catch-up barriers for many developing countries. This chapter identifies the ICT-based services trade that has been the focus of much attention at the turn of the century, and refers to some of the key issues related to the development of emerging and developing economies that have been the subject of much discussion. At the same time, it examines the possibilities and challenges for the development of emerging and developing economies opened up by the development of ICTs.”

From a post by Tim Hirschel-Burns:

“2025 admittedly presents a dubious landscape for achieving substantive global economic governance reforms. The scale of needs is large—achieving development and climate goals demands trillions more in annual financing and a reorientation of our economic system—while our political context is trending in the wrong direction, with countries cutting international investments and geopolitical tensions deterring international cooperation.

Still, making progress matters. On climate change, every fraction of a degree makes a difference, and the scale of development challenges are so large that even small increases in inclusive growth or public service provision can improve the lives of millions of people. Actions taken now can also set the stage for more ambitious reforms when circumstances become more favorable in the future.

So, what are five realistic goals for global economic governance in 2025?

1. Establish principles for MDB resource needs reviews and initiate them at each MDB

Right now, decisions on multilateral development banks’ (MDBs) financing capacity are largely driven by inertia and political whims, rather than a regular, evidence-based assessment of how their ability to provide finance matches up with the financing needed to meet goals and the international community. Resource needs reviews would change that, and they are one of the key recommendations of the Group of 20 (G20) Roadmap on Better, Bigger, and More Effective MDBs, which G20 leaders endorsed in November.

That Roadmap sets a near-term goal of establishing principles for resource needs reviews, and South Africa can push for these principles to be decided under its G20 presidency next year. The G20 can simultaneously push MDBs to each initiate their own resource needs review—in the World Bank’s case, the 2025 shareholding review provides a moment to launch an assessment of its capital needs. Carrying out these reviews will generate an analysis of what mix of capital adequacy reforms, hybrid capital and capital increases would add up to financing needs, putting MDBs on a strong footing to increase the supply of finance..”

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From Devdiscourse:

“The latest Kenya Economic Update by the World Bank, prepared by a multidisciplinary team including the Macroeconomics, Trade, and Investment team, examines Kenya’s economic trajectory in a challenging global context. Global growth reached 2.6 percent in 2023, with Sub-Saharan Africa’s real GDP projected to accelerate to 4 percent by 2025-26. Kenya’s economic growth, however, has slowed to 4.7 percent in 2024 from 5.6 percent in 2023, reflecting pressures from severe floods, subdued business sentiment post-protests, and fiscal consolidation. While Kenya has made progress with inflation control and a stronger currency, persistent fiscal deficits, high debt levels, and constrained public spending weigh on its long-term growth potential. Despite improved foreign reserves and macroeconomic stabilization, achieving sustainable development remains a complex challenge.

Fiscal Pressures and the Weight of Debt

Kenya’s fiscal landscape is characterized by significant revenue underperformance and growing debt servicing costs. The fiscal deficit, though narrowed to 5.2 percent of GDP in 2023/24, remains above the target of 4.7 percent, driven by lower-than-expected revenue collections from VAT and departmental fees. This shortfall has limited the government’s capacity for social and developmental investments. Kenya’s debt burden remains high, with domestic debt now comprising the majority of its liabilities, reflecting increased reliance on local borrowing. High domestic borrowing not only crowds out private-sector investment but also adds to fiscal pressures. Although the government has introduced tax reforms and expenditure rationalization policies, implementation gaps and socio-political challenges have hindered meaningful progress.”

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From The Grumpy Economist:

“I wrote this essay on Bob Hall and Consumption (link goes to pdf on my webpage) for the conference in honor of Bob Hall at Hoover, November 22. It turned into a more extended history of some trends in macroeconomics, which any student of macroeconomics might find useful. Why we do what we do is often obscure. If this post exceeds your email limit, finish on the website at grumpy-economist.com

Bob Hall and Consumption1

I’m going to cover just two of Bob Hall’s many pathbreaking papers, “Stochastic Implications of the Life Cycle–Permanent Income Hypothesis,” Hall (1978), and “Intertemporal Substitution in Consumption,” Hall (1988), both in the Journal of Political Economy. Along the way, this turns in to a brief history of the emergence of modern macroeconomics, and one of its central unsolved problems, intertemporal substitution.

I titled my remarks at the conference, “Consuming Hall at Chicago.” I think you know Hall has many fans at Stanford, but you might not know just how popular Bob was at Chicago. Pretty much everything I write today I learned from Bob Lucas and Lars Hansen at Chicago in the 1980s.

1 A Simple Idea

As usual for Bob, it all starts with a simple clever idea. In asset pricing, price is present value of dividends, so price follows a random walk. In the permanent income model, consumption is proportional to the present value of income. So consumption should follow a random walk too. Why not test that hypothesis just as asset pricers were doing in the 1970s, by running regressions,”

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