The Unassuming Economist

From a paper by Prakash Loungani, Hites Ahir, and Akos Mate:

“This chapter examines the International Monetary Fund (IMF)’s approach to labor markets and policy recommendations between the Global Financial Crisis (GFC) and the COVID-19 pandemic. It explores the contrasting positions of neoliberal and progressive perspectives on labor market efficiency and equity, as well as their attitudes toward globalization. The chapter analyzes the IMF’s advice on labor market flexibility, fiscal policy, and macroeconomic policies. It also discusses the reactions to the IMF’s work from progressive circles. The chapter provides insights into the IMF’s efforts to balance efficiency and equity considerations, particularly in advanced economies and emerging markets. Additionally, it explores the IMF’s work on distributional outcomes and its response to the COVID-19 pandemic’s impact on labor markets.”

From a paper by John Thornton, and Chrysovalantis Vasilakis:

“This paper examines the effect of inflation targeting (IT) on income distribution in a panel of 70 countries. Employing panel regressions and a variety of propensity score matching methods, we find strong evidence that incomes became more unequal in IT-adopting countries relative to countries that did not adopt IT. Panel regressions suggest that Gini coefficients increased by 0.25%–0.57% and the share of income of the top 1% and 10% of households increased by 0.7% in IT adopter countries. Using propensity score matching methods, IT has been associated with a relative rise in Gini coefficients of about 1–2 percentage points, and a relative increase in the share of national income going to the top 1% and 10% of households by about 11–13 percentage points and 13–17 percentage points, respectively. The results are robust to changes in country sample and alternative estimation methodologies.”

From a paper by Surjit Bhalla, Karan Bhasin, and Prakash Loungani:

“We examine the impact of formal adoption of inflation targeting (IT) on inflation, growth and anchoring of inflation expectations in advanced economies and emerging markets and developing economies (EMDEs). Our paper reports several findings relevant to assessing the success of IT regimes. We find that while the early adopters of IT (pre-2000) all saw declines in inflation rates following adoption, IT adopters since then have enjoyed such success in only about half the cases. Since there is not much difference, on average, between IT and non-IT countries in mean inflation, inflation volatility and the extent of inflation anchoring, it is not easy to sort out what role IT has played in ensuring good outcomes; in particular, we cannot rule out the possibility that the success of IT may be due to ‘regression to the mean’. Our country-level analysis—using the Synthetic Control Method (SCM) to compare outcomes in IT countries to a synthetic cohort—shows that IT adoption delivers significant inflation gains in about a third of the cases. At the same time, we also find limited support for the concern that adoption of IT systematically leads to poorer growth outcomes. At a time when central banks are struggling to keep inflation in check, our results suggest that the belief that IT adoption will be sufficient to achieve this goal cannot be taken for granted.”

From a paper by Guilherme Klein Martins:

“This paper provides evidence that austerity shocks have long-run negative effects on GDP. Our baseline results show that contractionary fiscal shocks larger than 3% of GDP generate a negative effect of more than 5.5% on GDP even after 15 years. Evidence is also found linking austerity to smaller capital stock and total hours worked in the long-run. The results are robust to different fiscal shock datasets, the exclusion of particular shocks, and the use of cleaner controls. The paper also engages with the emerging discussion regarding fiscal multipliers heterogeneity, presenting evidence that the effects of exogenous fiscal measures are nonlinear on the shock size. The results also contribute to the broader discussion on the long-run effects of demand by suggesting that such shocks might permanently affect the economy.”

From a paper by Jelena Momčilović and Mirjana Miletić:

“In this paper we showed how labour market factors are included in the macroeconomic model which the National Bank of Serbia uses for the medium-term inflation projection, thus enabling an insight into labour market trends, as well as an analysis of the link with other macroeconomic indicators, notably their effect on inflation. The estimates obtained by applying the Kalman filter indicate that NAIRU is still below the unemployment rate, suggesting a positive unemployment gap and showing that the labour market in Serbia is not exerting any major pressures on inflation. The paper also presents the results of testing the relevance of the hysteresis effect in the unemployment rate for Serbia. The hysteresis effect was confirmed by applying the unit root test and estimating the statistical significance of the stochastic trend in the NAIRU series.”