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1. Digital Data and Advanced AI for Richer Global Intelligence

Author:
Danielle Goldfarb
Publication Date:
02-2025
Content Type:
Special Report
Institution:
Centre for International Governance Innovation (CIGI)
Abstract:
From collecting millions of online price data to measure inflation, to assessing the economic impact of the COVID-19 pandemic on low-income workers, digital data sets can be used to benefit the public interest. Using these and other examples, this special report explores how digital data sets and advances in artificial intelligence (AI) can provide timely, transparent and detailed insights into global challenges. These experiments illustrate how governments and civil society analysts can reuse digital data to spot emerging problems, analyze specific group impacts, complement traditional metrics or verify data that may be manipulated. AI and data governance should extend beyond addressing harms. International institutions and governments need to actively steward digital data and AI tools to support a step change in our understanding of society’s biggest challenges.
Topic:
Economics, Inflation, Artificial Intelligence, and Data
Political Geography:
Global Focus

2. The Role of Long Histories of “Lived Experience” in the COVID-Era Inflationary Surge

Author:
Joseph E. Gagnon and Steven Kamin
Publication Date:
04-2025
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
A rough consensus has evolved around the causes of the COVID-era inflationary spike: the disruption in supply chains; the shift in demand from services to goods; the surge in commodity prices that followed Russia’s invasion of Ukraine; and the pandemic fiscal stimulus programs. In this paper, we highlight an additional factor influencing the incidence of pandemic inflation across countries—their long histories of “lived experience” with inflation. We show that more than half of the variation in inflation across countries during the 2020–23 period can be explained by their earlier levels of inflation. Even controlling for inflation in the 2016–19 period, countries with higher inflation in the 2000–2015 period had higher COVID-era inflation, and the effect of long-lagged inflation is both economically and statistically significant. These long histories of lived experience dominated other policy measures to control inflation, including inflation targets and central bank independence. The influence of long-lagged inflation history appears to be greatest during periods of heightened volatility; it was less important in explaining the cross-country pattern of inflation during the more tranquil period immediately preceding the pandemic.
Topic:
Economy, Inflation, COVID-19, and Supply Chains
Political Geography:
Global Focus

3. 3 International Climate Priorities for 2024

Author:
Anne Christianson, Trevor Sutton, and Frances Colon
Publication Date:
06-2024
Content Type:
Special Report
Institution:
Center for American Progress - CAP
Abstract:
As President Joe Biden’s first term draws to a close, his administration must deliver on three international climate policies to catalyze a 21st-century clean energy economy and avoid the worst impacts of climate change.
Topic:
Climate Change, Diplomacy, Economy, Inflation, Renewable Energy, Resilience, and Joe Biden
Political Geography:
Global Focus and United States of America

4. Is “High Inflation” Always and Everywhere an Exchange Rate Phenomenon?

Author:
Tural Yusifzada, Hasan Cömert, and Kagan Parmaksiz
Publication Date:
10-2024
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
After decades of stable and low levels of inflation throughout the world, the recent global upsurge in inflation has once again triggered extensive debate among economists about the underlying reasons for the rising trend in inflation. This study aims to contribute to this ongoing discussion by exploring a potential channel that could be fundamental to our understanding of the high inflation levels common across a large number of countries. Drawing upon a rich historical dataset spanning from 1961 to 2023 and employing a random effects panel probit model, our research reveals that the nominal exchange rate depreciation emerges as a strong predictor of “high inflation” episodes across different economies and time periods. Notably, this predictive capability extends to countries with varying income levels, with high-income, upper-middle-income, and lower-middle-income nations exhibiting success rates of 70%, 77%, and 63%, respectively, in forecasting “high inflation” based solely on exchange rate depreciation. Furthermore, food and energy prices also emerge as other important contributors to inflation. These findings have important implications for recognizing exchange rate depreciation as a vital early warning signal for high inflation not only facilitates more timely and effective policy interventions but also emphasizes the critical role of historical exchange rate dynamics and supplyside factors in comprehending the complexities of “high inflation.”
Topic:
Economy, Inflation, Exchange Rates, Early Warning, and Panel Probit Model
Political Geography:
Global Focus

5. The Trinity of COVID Era Inflation in G7 Economies

Author:
Joseph E. Gagnon and Asher Rose
Publication Date:
12-2024
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
COVID era inflation was driven by a unique combination of three shocks: First, a plethora of pandemic-related shifts in demand patterns and disruptions to supply caused prices of consumer durable goods to skyrocket. Second, the Ukraine war caused the largest global commodity price surge in 40 years, which mainly affected prices of nondurable goods such as food and gasoline. Third, strong monetary and fiscal responses to the pandemic recession caused labor markets to tighten, pushing up prices of services. This paper estimates models of the components of consumer prices in each G7 economy in order to document the transmission of these shocks. The first two shocks had run their course by 2023, enabling overall inflation to decline sharply from its 2022 peak. But labor markets remained at least moderately tight in most G7 economies in 2024, and services inflation remained noticeably higher than its pre-pandemic level.
Topic:
Economy, Inflation, G7, COVID-19, and Goods and Services
Political Geography:
Global Focus

6. Energy investment in a time of inflation

Author:
Charles Lichfield and Joseph Webster
Publication Date:
01-2023
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
High rates of inflation across the world are forcing central banks to reluctantly tighten monetary policy despite accompanying recession risks. Moreover, restricted credit access could jeopardize energy investments, particularly for capital-intensive clean energy projects, potentially rendering the world more vulnera­ble energy to price shocks, which are a significant contributor to the current crisis. This paper briefly considers the macroeconomic drivers of inflation in late 2022, including Russia’s war in Ukraine and uncertainties around energy supply, supply-chain resets, and lingering COVID-19 disruptions, before examining the persistent energy underinvestment of the past decade and how this has left markets exposed to varying degrees. As such, this paper also considers how private capital can accelerate cleaner energy adoption, suited to different markets’ unique conditions and needs. Bor­rowing costs will rise, but this doesn’t have to bring the transition to a standstill. With the Great Moderation of low volatility, interest rates, and inflation perhaps a relic of the past, assets offering inflation protection, such as infrastructure, may become increas­ingly attractive to investors. There is a fear that global inflation will sharply curtail energy investment into emerging markets. The fear is justified. Higher interest rates in developed markets mean higher rates of return which will lure emerging markets investors back to the US and Europe. Still, it’s not all bad news for emerging markets. Quasi-state actors like Pension and Sovereign Welfare funds are interested in very long term, high-yield projects—two criteria to which emerging market energy infrastructure correspond. Disruptions to interest rates and inflation, triggered in part by energy underinvestment, will cause disparate impacts in different markets. Inflation is not, perhaps, everywhere and always a mone­tary phenomenon. Energy investment faltered from 2014 to 2020, despite low interest rates. Meanwhile, aggre­gate supply shocks—first due to COVID, then from Putin’s invasion of Ukraine—have pressured energy production and prices, raising inflation and necessitating interest rate hikes. The consequences of persistent energy underinvest­ment are now becoming apparent. The need for new energy infrastructure cannot be met without private investment. This was the case when infla­tion was lower; it is even more important now.
Topic:
Environment, Markets, Oil, Governance, Gas, Economy, Investment, Inflation, and Energy
Political Geography:
Global Focus

7. Sellers’ Inflation, Profits, and Conflict: Why Can Large Firms Hike Prices in an Emergency?

Author:
Isabella Weber and Evan Wasner
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
The dominant view of inflation holds that it is macroeconomic in origin and must always be tackled with macroeconomic tightening. In contrast, we argue that the US COVID-19 inflation is predominantly a sellers’ inflation that derives from microeconomic origins, namely the ability of firms with market power to hike prices. Such firms are price makers, but they only engage in price hikes if they expect their competitors to do the same. This requires an implicit agreement which can be coordinated by sector-wide cost shocks and supply bottlenecks. We review the long-standing literature on price-setting in concentrated markets and survey earnings calls and compile firm-level data to derive a three-stage heuristic of the inflationary process: (1) Rising prices in systemically significant upstream sectors due to commodity market dynamics or bottlenecks create windfall profits and provide an impulse for further price hikes. (2) To protect profit margins from rising costs, downstream sectors propagate, or in cases of temporary monopolies due to bottlenecks, amplify price pressures. (3) Labor responds by trying to fend off real wage declines in the conflict stage. We argue that such sellers’ inflation generates a general price rise which may be transitory, but can also lead to self-sustaining inflationary spirals under certain conditions. Policy should aim to contain price hikes at the impulse stage to prevent inflation from the onset.
Topic:
Political Economy, Inflation, Profit, and COVID-19
Political Geography:
Global Focus

8. War, Plague and Inflation: Is this time different?: An Interview with Dr. Natacha Postel-Vinay

Author:
Natacha Postel-Vinay and Tehreem Husain
Publication Date:
05-2023
Content Type:
Commentary and Analysis
Institution:
The Toynbee Prize Foundation
Abstract:
World economies are facing a troika of challenges in the form of war (in Ukraine), disease (COVID19) and return of inflation, all of which have led to dampened growth globally. This invites us to ask how new these challenges, individually and as a combination, are, and what lessons we can draw from history? To answer these questions, we take a long-run view from more than 100 years of history to discuss the implications of war, disease, and inflation on our economies. This interview features Dr. Natacha Postel-Vinay, an economic and financial historian and Assistant Professor at the Department of Economic History at the London School of Economics and Political Science. Dr. Postel-Vinay is an expert on the economic history of the Great Depression. Her research focuses on public finance, private finance, and welfare. More specifically, her research looks at the connections between bank risk-taking, banking crises, banking crisis resolution, public debt, and moral hazard, all from a historical perspective. I seek her opinion on the current economic environment and discuss how history can inform the present. The talk is structured in two parts. The first part focuses on understanding the similarities and differences between the experiences of inflation, war, and pandemic today compared to the interwar period. This section covers rising indebtedness and the impact of war, pandemic, and inflation on bank lending and credit supply. The second part focuses on highlighting some solutions to the present crisis and highlighting the risks to recovery.
Topic:
War, History, Inflation, Interview, and Disease
Political Geography:
Global Focus

9. Pandemic-era Inflation Drivers and Global Spillovers

Author:
Julian di Giovanni, Şebnem Kalemli-Özcan, Alvaro Silva, and Muhammad A. Yildirim
Publication Date:
11-2023
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
We estimate a multi-country multi-sector New Keynesian model to quantify the drivers of domestic inflation during 2020–2023 in several countries, including the United States. The model matches observed inflation together with sector-level prices and wages. We further measure the relative importance of different types of shocks on inflation across countries over time. The key mechanism, the international transmission of demand, supply and energy shocks through global linkages helps us to match the behavior of the USD/Euro exchange rate. The quantification exercise yields four key findings. First, negative supply shocks to factors of production, labor and intermediate inputs, initially sparked inflation in 2020–2021. Global supply chains and complementarities in production played an amplification role in this initial phase. Second, positive aggregate demand shocks, due to stimulative policies, widened demand-supply imbalances, amplifying inflation further during 2021–2022. Third, the reallocation of consumption between goods and service sectors, a relative sector-level demand shock, played a role in transmitting these imbalances across countries through the global trade and production network. Fourth, global energy shocks have differential impacts on the US relative to other countries’ inflation rates. Further, complementarities between energy and other inputs to production play a particularly important role in the quantitative impact of these shocks on inflation.
Topic:
Economy, Inflation, Pandemic, COVID-19, and Supply Chains
Political Geography:
Global Focus and United States of America

10. Optimal Inflation Targeting With Anchoring

Author:
Thomas Michl
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
This paper presents an alternative foundation to the standard quadratic loss function characterizing central bank inflation policy. The alternative treats high employment as a social benefit. In recognition of the inherent asymmetry of the output gap, two self-imposed constraints provide guardrails that rule out excess unemployment and opportunistic reflation. The loss function includes a novel reverse discounting mechanism that penalizes the bank for more sustained inflation gaps that could undermine confidence in the central bank’s target. In the absence of anchoring, the central bank is obliged to use economic slack to accomplish a disinflation but the presence of anchoring creates greater policy flexibility freeing it from the tyranny of the sacrifice ratio. The central bank’s optimal policy differs dramatically from the standard Taylor Rule recommendation in choosing policy plans with higher employment, in its willingness to overshoot inflation targets, and in avoiding excess unemployment, all while observing the discipline needed for successful inflation targeting.
Topic:
Economics, Employment, Banks, and Inflation
Political Geography:
Global Focus