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31. 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

32. 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

33. 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

34. Between inflation and growth: for an ECB at the service of European power and strategic autonomy

Author:
Nicolas Goetzmann
Publication Date:
09-2023
Content Type:
Working Paper
Institution:
Robert Schuman Foundation (RSF)
Abstract:
The succession of shocks that have hit the global economy since the beginning of 2020 highlights the strengths and vulnerabilities of the different growth models of the major global blocs, namely the United States, China and the European Union[1]. While the United States can still count on domestic consumption, which is the unsinkable foundation of the country's development, China faces the necessary evolution of a model considered obsolete by its authorities[2]. From growth guided by a level of investment that will be difficult to sustain over the long term and a trade balance that is largely in surplus, Xi Jinping's China is under increasing pressure to support its domestic demand as a means of correcting its imbalances. Situated at the centre of this Sino-American competition, the European Union - and more precisely its heartland, the euro area - finds itself weakened by sluggish domestic demand and development based largely on foreign trade, the structure of which has been geopolitically undermined over the last three years. However, the shortcomings of the European growth model came to light in the aftermath of the great financial crisis, which pushed the GDP trajectory onto a path of stagnation, the first consequence of which was that it fell behind the United States, before being overtaken by the Chinese economy in 2021.
Topic:
European Union, Economic Growth, Inflation, and Strategic Autonomy
Political Geography:
United States, China, and Europe

35. Monetary policy in Latin America: The easing cycle has begun

Author:
Alejandro Werner
Publication Date:
11-2023
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
Latin America’s central banks acted promptly and decisively to contain the medium-term consequences of the global inflation shock. Since then, however, headline and core inflation have come down within the region, real growth has slowed, and the US Federal Reserve appears to have settled on a (however brief) pause of its own tightening cycle. Werner says the time has come for a gradual return to looser financial conditions in Latin America. Brazil, Chile, and Peru have already started the process of cutting rates, and there seems to be significant space to continue; Mexico should follow, with Colombia waiting for more clear signals.
Topic:
Monetary Policy, Inflation, Interest Rates, and Central Bank
Political Geography:
Latin America

36. How the United States solved South Korea’s problems with electric vehicle subsidies under the Inflation Reduction Act

Author:
Chad P. Bown
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
South Korea felt “betrayed” when President Joseph R. Biden Jr. signed his administration’s flagship climate legislation, the Inflation Reduction Act (IRA) of 2022, into law. This paper first shows how the Biden administration addressed Korea’s concerns about the law’s effect on its sales of electric vehicles (EVs) in the United States. Thanks in part to the Treasury Department’s regulations written to implement the law, Korean exports of EVs to the United States grew even after the IRA went into force. Whether these actions by the Biden administration are enough to assuage the concerns of the Koreans—and other allies adversely affected by the IRA—remains to be seen. Furthermore, the US accommodation of Korean concerns came with tradeoffs by offsetting key incentives Congress may have intended in passing the IRA. The paper examines the potential impact of the law on South Korean battery companies, and it provides an initial exploration into how the Korean government responded to the IRA by adjusting its own policy mix of EV consumer tax credits and industrial policy for its EV plants and battery makers.
Topic:
Climate Change, Science and Technology, Inflation, Energy, and Electric Vehicles
Political Geography:
Asia, South Korea, North America, and United States of America

37. Whose Land Is It and What Is It For? An Unfinished Debate about Land Access in Argentina

Author:
Tricontinental: Institute for Social Research
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Tricontinental: Institute for Social Research
Abstract:
How is it that a country like Argentina, with its vast rural territory, longstanding agricultural tradition, and capacity to produce food for hundreds of millions of people, is plagued by runaway inflation and high levels of poverty?
Topic:
Agriculture, Poverty, Capitalism, Inflation, and Land Rights
Political Geography:
Argentina and South America

38. World Economy in Winter 2023: Expansion continues with little momentum

Author:
Klaus-Jurgen Gern, Stefan Kooths, Jan Reents, Nils Sonnenberg, and Ulrich Stolzenburg
Publication Date:
12-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
The global economy held up better than expected in the face of the inflation shock and the massive tightening of monetary policy in 2023, even if the economic expansion was moderate. Inflation is now falling swiftly and monetary policy is expected to start cutting interest rates in the first half of 2024. However, there are currently scant signs that global outlook will meaningfully improve in the near term. In the advanced economies, a high level of policy uncertainty is weighing on growth while fiscal policy stimuli are waning. In China, economic momentum remains subdued due to structural problems. Overall, we expect global production - measured on a purchasing power parity basis - to increase by 2.9 percent in the coming year, following 3.1 percent in 2023. For 2025, we expect global growth to pick up to 3.2 percent. We have thus revised upwards our forecast for 2023 and 2024 slightly - by 0.1 percentage points - compared to our September report. Although unemployment in the advanced economies will increase slightly going forward, it will remain historically low. Inflation will continue to fall and generally approach target levels again by 2025.
Topic:
Monetary Policy, Economy, Inflation, and Production
Political Geography:
Global Focus

39. The Effect of Financial Development on Income Inequality

Author:
Vese Qehaja-Keka, Atdhetar Gara, Erblina Hajdari, and Arber Hoti
Publication Date:
12-2023
Content Type:
Journal Article
Journal:
Journal of Liberty and International Affairs
Institution:
Institute for Research and European Studies (IRES)
Abstract:
The imperative goal of attaining sustainable development necessitates mitigating income inequality and bolstering access to financial institutions. This research explores the influence of an array of independent variables, namely credit demand, GDP per capita, inflation, government consumption expenditure, and education, on the Gini coefficient across the EU’s 27 Member States from 2008 to 2019. The investigation procured secondary data from the esteemed international entity, the World Bank, with 324 observations belonging to the panel type. Because of the utilization of panel data, this study implemented various econometric models, commencing with the OLS model, followed by the fixed effects model (FE) and random effects model (RE). According to the outcomes of the econometric models, credit demand and education positively impact income inequality. At the same time, GDP per capita, inflation, and government consumption expenditures have a negative effect on income inequality. Additionally, the findings demonstrate the significant impact of credit demand, GDP per capita, inflation, and government consumption expenditures on income inequality.
Topic:
Education, GDP, Income Inequality, Inflation, and Sustainable Development
Political Geography:
Global Focus

40. Betting on Black Gold: Oil Speculation and U.S. Inflation (2020-2022)

Author:
Carlotta Breman and Servaas Storm
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Sharp increases in systemically important crude oil prices have been a major cause of the recent surge in the inflation rate in the U.S. This paper investigates the extent to which the increase in oil prices can be attributed to excessive speculation in the oil futures market. Our analysis suggests that excessive speculation in the crude oil market has been responsible for 24%-48% of the increase in the WTI crude oil price during October 2020-June 2022. These estimates translate into an oil price increase of around $18-$36 per barrel and an increase in the U.S. PCE inflation rate by circa 0.75 to 1.5 percentage points during the same period. We complement the analysis with an empirical investigation of the crude oil market which shows that (speculative) long non-commercial open-interest positions in oil futures have increased considerably relative to short non-commercial positions. We further find that higher futures prices for crude oil ‘Granger-cause’ oil spot prices, the futures prices of corn and soybeans and the fertilizer price. These econometric results show that oil speculators have to be held accountable for not just raising oil prices, but also driving up food commodity prices. We finally discuss measures to clamp down on excessive speculation in oil in order to eliminate its systemically adverse consequences for the U.S. economy.
Topic:
Economics, Markets, Oil, Inflation, and Speculation
Political Geography:
North America and United States of America