The Unassuming Economist

A new IMF report provides a thorough overview of practices and resources on operationalizing inequality issues:

“Economic inclusion is the broad sharing of the benefits of, and the opportunities to participate in, economic growth. It embodies equitable outcomes related to financial well-being as well as opportunities in access to markets and resources, and protects the vulnerable.

Economic inclusion is a high priority issue for the IMF. High inequality is negatively associated with macroeconomic stability and sustainable growth—core to the Fund’s mandate in promoting systemic, balance of payments, and domestic stability. Some macroeconomic policies and reforms may have adverse distributional implications, which in turn can undermine public support for reforms. And, interest in distributional issues and inequality has grown among the membership, increasing the demand for the Fund to work in these areas. While the IMF has long recognized the importance of inequality issues, it has adopted in the recent years a more systematic and structured approach. In this regard, a pilot initiative on inequality was launched in 2015, with the third wave of countries currently participating. Once this wave is concluded, staff proposes to incorporate the analysis of inequality-related issues into broader country work where relevant.”

Several of my papers are noted:

• Furceri, Loungani, and Zdzienicka (2016) study the effects of monetary policy shocks on inequality.
• Furceri and Loungani (2015) investigate the association between capital account liberalization and inequality.
• Ball, Furceri, Leigh, and Loungani (2013) examine the distributional effects of fiscal consolidation.

From a new IMF report:

“Remittances outweigh the sum of augmented emigration loss and education expenditure for nearly half of the 31 countries in this sample. Most of these countries are from Central America. The countries for which remittances are not able to outweigh the above sum are mostly the Caribbean ones.

Of course, these results need to be qualified by the fact that there are other costs and benefits of emigration which have not been included in this framework, for e.g. the impact on trade, investment and marginal productivity of capital, and some others which are harder to measure. Other characteristics like demography, civil unrest, and natural disasters have also not been captured. The value of elasticity of factor price of skilled labor may be different from that of overall labor. Estimating country‐level elasticities would better capture country characteristics, but is subject to the availability of detailed survey data.”

A new post by Timothy Taylor says that “there are a lot of ways to look at unemployment, but whatever measure you choose, the measure is essentially back to what it was before the Great Recession.” “There is no heaven on Earth, and there is no ultimate perfection to be found in real-world labor markets. But the current US labor market situation is really quite good.”

A new IMF paper shows that “Before the crisis, the personal saving rate was trending downwards. However, in 2008 there was a significant rise in the saving rate that continued until the end of 2012, suggesting a permanent change in household behavior. […] the rise in the saving rate during 2008-2012 was caused by the negative shocks to income, employment and wealth. This result explains why the saving rate resumed its decline in 2013, as real disposable income, employment
and net worth recovered. Assuming that the real growth in these determinants remains strong, the estimated model predicts continued negative pressures on the current account deficit and further external imbalances attributable to the U.S. household sector.”

From a new post by Pierre Monnin:

“Theoretical analyses and recent empirical evidence support the hypothesis that increasing inequality can pave the way to financial instability. Considering these results, central banks and financial regulators should keep a close watch on income and wealth distributions in their countries. They should be particularly attentive to a simultaneous rise in inequality and aggregate debt. They might also consider including inequality in their sets of early warning indicators for financial crises.”

“Central banks and financial regulators should also carefully consider the potential feedback loops between their macroprudential policy, inequality and financial stability. Some measures aimed at strengthening financial stability might increase inequality, and thus impede their initial goals. In such a case, central banks and financial regulators, perhaps in collaboration with fiscal authorities, could consider accompanying measures to mitigate the impact of macroprudential measures on inequality. When facing the choice between two policies with the same impact on financial stability, they should prefer the option that does not lead to higher inequality (or increases it the least) to avoid or reduce the side effects of higher inequality on financial stability. Finally, in accordance with their mandate regarding financial stability, central banks and financial regulators may have some reasons to support policies, e.g. fiscal policies, that mitigate the impact of inequality on financial stability.”