The Unassuming Economist

From a paper by Sohei Kaihatsu, Shogo Nakano, and Hiroki Yamamoto:

“This paper examines the impact of shifts in long-term inflation expectations on economic activity and price dynamics in Japan using a time-varying parameter vector autoregressive (TVP-VAR) model. Our empirical findings demonstrate that exogenous positive shocks to long-term inflation expectations improve the output gap and generate upward pressure on inflation rates. These results suggest the existence of an “expectations channel” in Japan, whereby higher inflation expectations stimulate private sector spending through mechanisms such as reducing real funding costs. Looking at the analysis by period, it indicates that during the deflationary phase of the 2000s, declining long-term inflation expectations likely contributed to persistent downward pressure on prices, potentially serving as one factor that hindered Japan’s exit from sustained deflation. However, following the introduction of the “price stability target” and Quantitative and Qualitative Monetary Easing (QQE) in 2013, this contribution reversed, appearing to exert upward pressure on inflation rates. In this respect, the findings suggest that the “management of expectations” intended by monetary policy during this period demonstrated some effectiveness. Nevertheless, as inflation rates subsequently declined, the upward contribution of inflation expectations to the inflation rate diminished, failing to anchor expectations to the price stability target. This outcome suggests the inherent difficulty in maintaining a sustained influence on long-term inflation expectations.”

From a paper by Bello Dalhatu:

“In an effort to provide policy recommendations for Nigeria’s transition to full-fledged inflation targeting, this study examines Ghana’s monetary policy frameworks (monetary aggregates targeting and inflation targeting) using ARDL bounds test for cointegration and Error Correction Mechanism (ECM) on annual time series data spanning 1965 to 2022 obtained from the Bank of Ghana database and the World Bank database on World Development Indicators. The results demonstrate that monetary aggregates targeting has not been successful in both the short-run and long-run periods in moderating and stabilizing inflation; however, inflation moderated under inflation targeting in both the short run and the long term. This indicates that inflation targeting proves to be a superior monetary policy framework for inflation control.”

From a paper by Chor Foon Tang and Jiechen Wang:

“Over the last 30 years, China has experienced outstanding economic growth along with significant transformation in its financial system and institutional environment. It has also emerged as the primary destination for substantial foreign direct investment (FDI). Therefore, numerous studies have focused on the roles of FDI, financial development and institutional quality in stimulating the Chinese economy. However, existing literature primarily addresses the direct linear impact on economic growth, neglecting potential non-linear relationships and the roles of institutions and financial development in moderating the FDI–growth nexus. This study employs unit root and Johansen’s cointegration tests to examine the roles of FDI, institutional quality and financial development in explaining economic growth in China from 1985 to 2020. Our results show that FDI, institutions, financial development and growth are cointegrated, with non-linear effects of institutional quality and financial development on growth. Furthermore, the impact of FDI on growth decreases when financial development is high (0.627%–0.517%), but increases with improved institutional quality (0.921%–1.158%). Hence, continuous improvements in institutional quality and the financial system do not uniformly affect economic growth, but significantly influence the contribution of FDI to economic growth in China.”

From a paper by Rasmus Bisgaard Larsen, Søren Hove Ravn, and Emiliano Santoro:

“We present aggregate and regional evidence showing that U.S. house prices increase persistently in response to positive shocks to fiscal spending. In sharp contrast to this, house prices decline in conventional dynamic general equilibrium models, where shocks that have short-lived effects on the shadow value of housing inevitably generate negative comovement between households’ marginal utility of consumption and house prices (see Barsky et al., 2007). In response to an increase in government spending, the negative wealth effect exerted by the simultaneous increase in the present-value tax burden increases the marginal utility of consumption. Even overcoming the consumption crowding-out puzzle is not sufficient to resolve this shortcoming. To tackle this problem, we extend an otherwise standard model embedding a lender-borrower relationship with alternative—yet, potentially complementary—propagation channels that leverage the expansion in total factor productivity stemming from a positive shock to fiscal spending, so as to contrast the negative wealth effect of higher taxes. This class of models succeeds in generating a persistent expansion in house prices, although the propagation required to match the data is stronger—in some cases significantly so—than what is typically found in the literature. The positive interplay between house prices and productivity finds support in both aggregate and regional data.”

From a paper by Remi Jedwab, Elena Ianchovichina, and Federico Haslop:

“Census data for 7000 cities – three fourth of the world’s urban population – reveal that cities of the same population size in countries with similar development levels differ substantially in terms of their employment composition, especially in the developing world. Using these data, we classify cities into production cities with high employment shares of urban tradables (e.g., manufacturing or business services), consumption cities with high employment shares of urban non-tradables (e.g., retail and personal services), or neutral cities with a balanced mix of urban tradables and non-tradables. After establishing stylized facts regarding the sectoral distribution of employment in our global sample of cities, we discuss the various paths by which developing nations may urbanize through production cities – via industrialization or tradable services – or consumption cities – via resource exports, agricultural exports, or deindustrialization. Country and city-level data corroborate our hypotheses. Results on the construction of very tall buildings also provide suggestive evidence on the relationship between resource exports and consumption cities. Importantly, consumption cities seem to present lower growth opportunities than production cities, diminishing the role of cities as “engines of growth.” Understanding how sectoral structure mediates the urbanization-growth relationship and how consumption cities become production cites is thus highly relevant for policy.”