The Unassuming Economist

From a paper by Ricardo Ramalhete Moreira:

“Since the Covid-19 pandemic, many economic policy protocols have come under scrutiny regarding their ability to handle unforeseen events and systemic effects. In particular, inflation targeting regimes have been questioned due to significant inflationary deviations resulting from a substantial rise in firms’ operating costs and, simultaneously, the necessary accommodation of shocks by central banks through a reduction in real interest rates to address the recessionary impacts of the pandemic. This brief article explores institutional channels and builds an original optimization analysis of the trade-off between flexibility and credibility as attributes of monetary policy, thereby highlighting aspects that make inflation targeting regimes a resilient framework for dealing with the structural uncertainty surrounding central bank decisions in the post-Covid era.”

From a paper by Nezir Köse and Ali Talih Süt:

“This study proposes an implicit index for central bank credibility, which is critical in developing countries implementing an inflation-targeting regime. In a credible central bank, the policy rate impacts the interest rate on short-term deposits. Under this assumption, the residuals obtained from the panel regression model, in which deposit rates are defined as dependent and policy rates as independent variables, are used to calculate the implicit credibility index of central banks. The proposed central bank implicit credibility index was calculated using monthly data from 12 developing countries and New Zealand implementing the inflation targeting regime between January 2006 and June 2023. According to average implicit credibility scores, the most credible central banks for the period between 2006 and 2023 are Thailand, South Africa, and New Zealand, respectively. The results of the fixed effects model using the annual data of the 13 countries between 2006 and 2022 indicate that inflation and its uncertainties have negative effects on the implicit credibility index of the central bank. These results indicate that central banks in developing countries with high inflation and inflation uncertainty may have difficulty in ensuring credibility.”

From a paper by Bing Lu, Xu Yang, Xinding Yu:

“Using data from Chinese industrial firms between 2000 and 2013, we explore the varied impact of minimum wage increases on the exit behavior and export performance of foreign-owned firms, focusing on three primary motivations: labor costs, market size, and industrial linkages. The results show that foreign-owned firms driven by labor costs are more likely to exit following a minimum wage hike, while those motivated by market size and industrial linkages are less likely to be affected. We also observe similar patterns in firm exports: rising minimum wages generally reduce foreign-owned firms’ exports, with the impact being more pronounced for firms with lower domestic market shares and weaker industrial linkages. This paper highlights that deep integration of foreign-owned firms into the domestic market and industrial chain can help mitigate the exit risks associated with rising labor costs.”

From a paper by Aariya Sen, and Rudra Sensarma:

“Recent studies have examined the impact of monetary policy on economic inequality, but have focused on advanced economies and wealth inequality. We analyse the impact of monetary policy on income and consumption inequality estimated from a household level dataset in India. We apply Sign-Restricted VAR and Local Projection models to monthly data for 2014–2023. We show that contractionary monetary policy worsens consumption inequality while reducing income inequality. We also find that while restrictive monetary policy reduces capital income inequality and wage income inequality it widens the gap between capital and wage income earners. Moreover, monetary policy exhibits asymmetric effects, suggesting trade-offs for the central bank.”

From a paper by Kristin Forbes, Jongrim Ha, and M. Ayhan Kose:

“Central banks often face tradeoffs in how their monetary policy decisions impact economic activity (including employment), inflation and the price level. This paper assesses how these tradeoffs have evolved over time and varied across countries, with a focus on understanding the post-pandemic adjustment. To make these comparisons, we compile a cross-country, historical database of “rate cycles” (i.e., easing and tightening phases for monetary policy) for 24 advanced economies from 1970 through 2024. This allows us to quantify the characteristics of interest rate adjustments and corresponding macroeconomic outcomes and tradeoffs. We also calculate Sacrifice Ratios (output losses per inflation reduction) and document a historically low “sacrifice” during the post-pandemic tightening. This popular measure, however, ignores adjustments in the price level—which increased by more after the pandemic than over the past four decades. A series of regressions and simulations suggest monetary policy (and particularly the timing and aggressiveness of rate hikes) play a meaningful role in explaining these tradeoffs and how adjustments occur during tightening phases. Central bank credibility is the one measure we assess that corresponds to only positive outcomes and no difficult tradeoffs.”