The Unassuming Economist

From a paper by Kardelen Cicek, Julieth Pico Mejía, Marcos Poplawski-Ribeiro, Alberto Tumino:

“This paper analyzes the redistributive effects of inflation across 18 European economies from
2021:Q3 to 2022:Q2, using unique micro-datasets for this country sample. We estimate inflation’s impact on household welfare through the consumption basket, income, and wealth channels. Our main contribution is incorporating real assets into the wealth channel and accounting for behavioral responses to inflation in both the income and wealth channels. These factors significantly alter inflation’s distributional effects compared to previous literature. The inflation shock is estimated to have caused an average welfare loss equivalent to 18.5 percent of annual household income across our sample, with households in the poorest income quintiles suffering the largest losses. Cross-country differences also widen when real assets are incorporated, with a few economies even showing welfare gains for some or all quintiles because house prices rose faster than inflation.”

From a paper by Claus Brand, Gavin Goy, and Wolfgang Lemke:

“Using a novel macro-finance model we infer jointly the equilibrium real interest rate r*, trend inflation, interest rate expectations, and bond risk premia for the United States. In the model r* plays a dual macro-finance role: as the benchmark real interest rate that closes the output gap and as the time-varying long-run real interest rate that determines the level of the yield curve. Our estimated r* declines over the last decade, with estimation uncertainty being relatively contained. We show that both macro and financial information is important to infer r*. Accounting for the secular decline in interest rates renders term premia more stable than those based on stationary yield curve models.”

From a paper by Guivis Zeufack Nkemgha, Le Roi Nso Fils, and Ulrich Kevin Kamwa:

“This paper examines the impact of trade liberalisation on income inequality across 24 Sub-Saharan African (SSA) countries from 2000 to 2020. Using IV-Tobit and 2SLS models, we consistently find that greater trade openness significantly exacerbates inequality in the region. Critically, we document an inverted U-shaped relationship between trade and inequality—similar to the Laffer Curve—but this mitigating effect is only observed in high-income, less corrupt, and democratic SSA countries. In addition, trade openness demonstrates a dual, contradictory effect on inequality: the disruptive impact on employment significantly outweighs the mitigating effect of the education channel. This disparity underscores that without robust labour market and social protection policies, the negative employment consequences of trade liberalisation will dominate the potential equalising gains from human capital development.”

From a paper by Óscar Peláez-Herreros:

“We develop the first disaggregation of Okun’s law that quantifies all of the information that is subsumed within its coefficients. The proposed method decomposes the coefficients into the sum of the direct effect of the change in output upon the unemployment rate, plus the indirect effects of the variations in the output per hour worked, the hours worked per employed person, the participation rate, and the size of the working-age population. With quarterly data for the United States from 1948 to 2024, we found that the value of the intercept in Okun’s relation is determined by the increases in working-age population and output per hour of work, along with the decrease in the number of hours worked per employed person, plus the growth of the participation rate until the 1990s and its subsequent decline. For its part, the slope, that is, the value of Okun’s coefficient, depends mainly upon the variations in output per hour of work and the hours per employed person. The other factors were scarcely relevant. Changes in these components caused the Okun’s relation to vary over time, showing a greater sensitivity of the unemployment rate to variations in production since the 2008 crisis.”

From a paper by Tayebeh Chaman, Ali Asghar Salem, Abbas Shakeri Hossein Abad, and Teymour Mohammadi:

“The inflation targeting regime, by emphasizing transparency, accountability, and anchoring inflation expectations, leads to improved inflation control, a reduction in economic instability, and the creation of a favorable environment for economic growth, productive investment, and lower income inequality. Therefore, the objective of the present study is to investigate the role of inflation targeting in income distribution across a sample of 39 countries, including 7 inflation-targeting and 32 non-inflation-targeting countries, using a difference-in-differences approach over the period 1995–2023. The findings indicate that the implementation of an inflation-targeting regime has a negative and statistically significant effect on the Gini coefficient, thereby reducing income inequality in the treatment-group countries relative to the control group. In addition, per capita GDP, the share of the agricultural sector in GDP, and foreign direct investment have negative and significant effects on income inequality, while the trade share of GDP has a positive and significant effect. Overall, the results suggest that adopting an inflation-targeting regime in countries experiencing high inflation and ineffective monetary policy frameworks can mitigate the adverse effects of inflation on income distribution. Thus, it is recommended that central banks in such countries implement an inflation-targeting framework to enhance macroeconomic stability, promote investment, and reduce income inequality.”