The Unassuming Economist

From a paper by Lorena Škuflić, Dora Walter, and Valentina Vučković:

“Purpose: This paper analyses economic and social impact of fiscal austerity policies on economic growth
and income distribution. In response to the European public debt crisis, austerity measures were implemented in 2010 to decrease the budget deficit and avoid the default of the government debt, but have also caused negative effects on the whole economy.

Methodology: In order to evaluate the effectiveness of fiscal austerity, the synthetic control method (SCM) is applied by creating a synthetic counterfactual from European countries. Greece is used as an example to assess the impact of the aforementioned policy due to having experienced fiscal consolidation to a much larger extent than other crisis-affected countries.

Results: Fiscal austerity causes a decline in real GDP per capita compared to its pre-austerity level. Additionally, it results in higher unemployment and a more unequal distribution of income in the initial years following the treatment.

Conclusion: The objective of fiscal austerity, i.e. the reduction of the debt-to-GDP ratio, is frequently not
achieved due to negative effects of these measures on GDP. Fiscal austerity may occasionally be unavoidable, but even in these cases, deliberate measure-taking is required to prevent the increase in unemployment and income inequality, as witnessed after the global financial crisis.”

From a paper by Kayoko Ishii & Isamu Yamamoto:

“Although the COVID-19 pandemic could have caused both monetary and non-monetary distributional changes, existing studies have only investigated its immediate monetary impacts. This study examines the pandemic’s medium-term impacts on income and well-being inequality using individual longitudinal data from the Japan Household Panel Survey. Gini coefficients and income mobility before and after the pandemic are calculated to analyze income inequality. Various well-being measures such as mental health and life satisfaction are used to analyze well-being inequality. The findings reveal no increase in income inequality. Progressive income growth ensured stable inequality throughout the pandemic. Conversely, on average, well-being worsened, and well-being inequality increased. Furthermore, we find an association between income and well-being inequality. The random-effects and fixed-effects models indicate that the well-being of the high-income group tended to improve, whereas that of the low-income group tended to deteriorate after the outbreak of the pandemic. Additionally, the causal mediation analysis shows that the adoption of remote work served as a factor for the increase in the well-being of people in the high-income group. Remote work became disproportionately prevalent during the pandemic, especially among people in the higher income group. This group experienced various benefits of remote work, which contributed to an improvement in their well-being and an increase in well-being inequality.”

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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