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1. Fiscal Transfers and Inflation: Evidence from India

Author:
Girish Bahal and Anand Shrivastava
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
Centre for Sustainable Employment, Azim Premji University
Abstract:
Controlling for monetary policy, government transfers are potentially inflationary. This, however, may not be true when the economy is demandconstrained. Using a panel data of 17 Indian states over 30 years, we show that government transfers via welfare programs do not lead to inflation. For identification, we use a narrative shock series of transfer spending that is based on the introduction of new welfare programs. We then look at a specific program, NREGA, which has been shown to increase rural wages, and show that its implementation did not increase inflation.
Topic:
Economics, Government, Labor Issues, Monetary Policy, Employment, Inflation, and Demand
Political Geography:
India

2. Demand-determined potential output: a revision and update of Okun’s original method

Author:
Claudia Fontanari, Antonella Palumbo, and Chiara Salvatori
Publication Date:
05-2019
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper challenges the mainstream view of potential output, and enquires into the supposed effects of Great Recession on potential growth. We identify in the demand-led growth perspective a more promising theoretical framework both to define the notion and to gauge the long-term effects of a demand slow down. Based on the poor reliability of standard estimates of potential output, we also propose an alternative calculation. This is based on an update of Arthur M. Okun’s original method for estimating potential output, which, differently from the estimation methods currently in use, does not rely on the notion of NAIRU, thus being immune to its theoretical and empirical shortcomings. Our calculation, based on a re-estimation of Okun’s Law on US quarterly data, shows both how far an economy generally operates from its production possibilities, and how much potential growth is affected by the actual growth of demand over time. These wide margins for expansion of actual and potential output growth imply that a determined policy of demand expansion would create, given time, the very capacity that justifies it.
Topic:
Economics, Global Recession, Economic growth, Macroeconomics, and Demand
Political Geography:
United States and Global Focus