The Unassuming Economist

From a paper by David Amaglobeli, Joaquim Guilhoto, Samir Jahan, Salma Khalid, Raphael Lam, Gregory Legoff, Brent Meyer, Xuguang Simon Sheng, Pawel Smietanka, Sonya Waddell, and Daniel Weitz:

“The energy price shock in 2022 led to government support for firms in some countries, sparking debate about the rationale and the nature of such support. The results from nationally representative firm surveys in the United States and Germany indicate that firms in these countries were generally resilient. Coping strategies adopted by firms included the pass-through of higher costs to consumers, adjustment of profit margins (United States) and investments in energy saving and efficiency (Germany). Firms in energy-intensive industries would have been significantly more affected if international energy prices were fully passed through to domestic prices in Europe. Survey responses further reveal that most firms are uncertain about the impact of recent policy announcements on green subsidies. Firms take advantage of fiscal incentives to accelerate their climate-related investment plans are often those that have previous plans to do so. These findings suggest better targeting and enhancing policy certainty will be important when facilitate the green transition among firms.”

From a paper by Fernando Avalos, Ryan Niladri Banerje, Matthias Burgert, Boris Hofmann, Cristina Manea, and Matthias Rottner:

“Major price increases in energy and food were key drivers of the 2021–22 inflation surge. These large supply-driven commodity price increases, occurring when inflation was already elevated in many countries, increased the risk of moving to a high-inflation regime. Central banks have tended to look through commodity price fluctuations due to their often transitory nature and the implied trade-off between inflation and output stabilisation in the case of supply-driven price shocks. Growing geopolitical disruptions, climate change and a bumpy transition to green energy threaten to make commodity price shifts larger and more frequent going forward. This potentially raises greater risks for price stability, thereby limiting the scope for monetary policy to look through them.”

From a paper by Elena Bárcena-Martín, Natalia Martín-Fuentes, and Salvador Pérez-Moreno:

“This work provides evidence of the heterogeneous effects of the ECB’s monetary policy across income classes. In particular, this investigation focuses on the labor market channel. Based on EU-SILC data, we estimate country-specific structural vector autoregressions (SVAR) models to analyze the impact of the expansionary monetary policy shocks over the 2006–2019 period. The results suggest that monetary easing helped decrease unemployment rates for lower- and middle-income classes, to a larger extent for the former. This differential impact is accounted for a stronger improvement in job finding rates for classes located at the bottom of the income distribution. Conversely, the employment status of the upper class remained largely unaffected. The analysis identifies a positive impact of expansionary monetary policy on real labor income, which seems to have mostly benefitted the upper class. Overall, our results suggest that expansionary monetary policy helped decrease labor income inequality by exerting a stronger positive impact on lower-income households.”

From a paper by Christopher Erceg, Marcin Kolasa, Jesper Linde, and Andrea Pescatori:

“Many countries have used energy subsidies to cushion the effects of high energy prices on
households and firms. After documenting the transmission of oil supply shocks empirically in the United States and the Euro Area, we use a New Keynesian modeling framework to study the conditions under which these policies can curb inflation. We first consider a closed economy model to show that a consumer subsidy may be counterproductive, especially as an inflation-fighting tool, when applied globally or in a segmented market, at least under empirically plausible conditions about wage-setting. We find more scope for energy subsidies to reduce core inflation and stimulate demand if introduced by a small group of countries which collectively do not have much influence on global energy prices. However, the conditions under which consumer energy subsidies reduce inflation are still quite restrictive, and this type of policy may well be counterproductive if the resulting increase in external debt is high enough to trigger sizeable exchange rate depreciation. Such effects are more likely in emerging markets with shallow foreign exchange markets. If the primary goal of using fiscal measures in response to spikes in energy prices is to shield vulnerable households, then targeted transfers are much more efficient as they achieve their goals at lower fiscal cost and transmit less to core inflation.”

From a paper by Silas Xuereb, Matthew Fisher-Post, François Delorme, and Camille Lajoie:

“In this article, we estimate the distribution of all net national income in Canada from 1982 to 2021. We apply distributional national accounts (DINA) methodology to tabulated data from the Longitudinal Administrative Databank, combined with national accounts and survey data. Our descriptive results contribute to a more thorough understanding of income inequality in Canada over the past 40 years. We find that top income shares published by Statistics Canada tend to be underestimated relative to top income shares calculated using DINA, because DINA account for people who do not file taxes and for undistributed capital income that is retained in corporations. In line with previous research, income inequality in Canada increased significantly from 1982 until the mid-2000s. Although labour income drove initial growth in top shares, toward the end of this period capital income contributed most to growth in top shares. Top shares based on tax data were especially underestimated during this period because retained earnings were at their highest. Since the mid-2000s, top shares have decreased slightly and the income share of the bottom 50 percent has increased, although they have not returned to the levels observed in the early 1980s. During the pandemic, post-tax income inequality fell because of the large temporary transfer programs that were introduced. However, pre-tax income inequality increased in 2020, and even more so in 2021 when record levels of corporate profits were reached.”