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61. Considerations on Inflation, Economic Growth and the 2 Percent Inflation Target

Author:
Robert Pollin and Hanae Bouazza
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
This paper considers two basic questions with respect to inflation control, inflation targeting, and overall macroeconomic performance. The initial question is: what has been the justification in research for establishing an inflation target, and specifically a low inflation rate target of 2 – 3 percent, as the organizing principle and overarching goal of macroeconomic policy? The second question is: do we actually observe stronger macroeconomic performances—as measured in standard terms of GDP growth—when macro policy operates within the framework of such low inflation targets? Our answers to these questions are straightforward. First, no serious body of research has been produced that provides a clear justification for a 2 – 3 percent inflation target as the central goal of macroeconomic policy. Further, there is no body of evidence showing that economies at any level of development consistently experience stronger economic growth outcomes when inflation is maintained at less than 3 percent as opposed to higher inflation rates, certainly within a 4 – 5 percent inflation range and, in some circumstances, somewhat higher rates still. These findings are significant insofar as they open space for considering the set of measures other than contractionary monetary policies as viable inflation control tools. It is possible that these other measures do not operate as forcefully as contractionary monetary policy in bringing inflation down to a 2 – 3 percent target range. But our findings suggest that it is not typically necessary to force down inflation to such low levels, especially given that contractionary monetary policies succeed in controlling inflation primarily through the channel of raising mass unemployment and weakening workers’ bargaining power.
Topic:
Economic Growth, Inflation, and Macroeconomics
Political Geography:
Global Focus

62. Lessons from the Inflation of 2021-202(?)

Author:
Asha Banerjee and Josh Bivens
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
Starting in mid-2021, inflation in the United States rose to levels not seen since the early 1980s. This inflation followed on the heels of the economic shock imposed by the global COVID-19 pandemic and the significant fiscal policy interventions meant to smooth the fallout of this shock. As of October 2022, inflation – both headline and core measures stripping out food and energy prices – remained at historically high levels, though there are significant signs of softening in the near-future. This episode has sparked furious debate over the proper policy response, and has exposed how little innovative thinking has been done on inflation by either macroeconomists or policy analysts since the 1980s price acceleration was ended by the Volcker shock. This paper identifies a number of key questions raised by the inflationary outbreak of the past 18 months and offers some answers. An extremely brief summary of these questions and answers is provided below, with the rest of the paper expanding on these points.
Topic:
Economy, Inflation, Macroeconomics, Fiscal Policy, and COVID-19
Political Geography:
North America and United States of America

63. Does Station Name Matter?: Rent Seeking Behavior and Its Impact on Housing Prices

Author:
Hwiwon Seo and Minsik Choi
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
The purpose of this study is to investigate the effect of rent-seeking behavior for public goods on housing prices. To do so, we analyzed the case of renaming the Sinchoeon station to Jamsilsaenae station for the Seoul Metro Green line by applying the rent seeking theory and estimated the effect of the event on the housing prices of the affected neighborhood. The hedonic pricing model adopted by related studies does not produce unbiased estimates due to the endogeneity resulted from omitted variables including compounding macroeconomic variables. By developing a new dataset, we used the difference in differences regression method that produces more precise and unbiased estimates. Our results show that the housing prices affected by the renaming event increased by around 5% compared to those of non-affected neighborhood. Our analytical results can shed light on understanding related rent seeking behaviors for public goods provision.
Topic:
Economy, Macroeconomics, Housing, and Rent-seeking
Political Geography:
Asia and Korea

64. For a new European growth strategy

Author:
Nicolas Goetzmann
Publication Date:
01-2022
Content Type:
Policy Brief
Institution:
Robert Schuman Foundation (RSF)
Abstract:
The early 1990s saw the demise of the Soviet bloc, erasing more than forty years of competition with the United States: the rest of the decade witnessed the economic emergence of the People's Republic of China and the formal advent of the euro area as the economic powerhouse of the European Union. Two decades later, according to data published by the IMF, almost 60% of the world economy is now shared between these three dominant economic areas, the United States, China and the European Union, reshaping the face of the competition for global power.
Topic:
European Union, Economic Growth, Macroeconomics, and IMF
Political Geography:
China, Europe, and United States of America

65. Evaluating Macroeconomic Factors And Their Influence on Economic Growth: Empirical Evidence From Western Balkan Economies

Author:
Ereza A. Arifi
Publication Date:
06-2022
Content Type:
Journal Article
Journal:
Journal of Liberty and International Affairs
Institution:
Institute for Research and European Studies (IRES)
Abstract:
This research aimed to identify and evaluate the impact of some macroeconomic components on economic growth performance. The data applied in the analysis were secondary data, including six countries from 2005 to 2020. The econometric approach applied was the fixed effect regression approach to economic growth as a dependent variable. The study also applied several diagnostic tests and the Hausman test to select between fixed and random effects. The data provided after the analysis show that inflation and foreign direct investment have a significant positive impact, while public debt has a significant negative impact. Moreover, unemployment and population growth have shown statistically insignificant results. The study from the aspect of the original contribution provides arguments and applies two variables that are very little addressed in the context of economic growth. The study results provide critical information for policymakers, economists, and researchers and provide arguments for a sound and proactive debate on these variables.
Topic:
Economics, Economic Growth, Banks, and Macroeconomics
Political Geography:
Europe and Balkans

66. The Azerbaijani economy in the first four months of 2022: İndependent View

Author:
CESD Research Team
Publication Date:
05-2022
Content Type:
Working Paper
Institution:
Center for Economic and Social Development (CESD)
Abstract:
CESD – the Center for Economic and Social Development – concluded its macro-economic survey results for the first four months of 2022. According to the State Statistic Committee of Azerbaijan, Gross Domestic Product (GDP) increased by 7.2 % in January-April 2022 compared with the same period of previous year: The CESD’s figure for the same period was 6.5 %.
Topic:
Development, GDP, Economy, and Macroeconomics
Political Geography:
Azerbaijan

67. Africa's Great Moderation

Author:
Sebastian Krantz
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Over the past 30 years (1990-2019), African economies have experienced remarkable improvements in macroeconomic conditions, characterized by higher and more stable real per-capita growth rates, and lower and more stable inflation. This paper documents the persistent decline in macroeconomic volatility at the aggregate and sectoral levels, and seeks to provide explanations. Sectoral analysis shows a particularly strong reduction of growth volatility in agriculture, and, to a lesser extent, in services. Analysis of a broad range of explanatory factors yields that only a small fraction of the moderation can be explained by structural change, and changes in major structural characteristics such as institutions, trade intensity and diversification, natural resource dependence, or conflict incidence. Evidence suggests that changes in the external environment, improved macroeconomic policy frameworks, and ’softer’ structural improvements such as the deepening of the financial sector and increases in human capital, were important towards reducing volatility on the continent.
Topic:
Economic Growth, Institutions, Inflation, Macroeconomics, Resilience, and Volatility
Political Geography:
Africa

68. Implementando los ODS 3.6 y ODS 11.2 en Colombia

Author:
Felipe Dussán Zuluaga, Luis Carlos Galindo Bernal, Luz Karine Ardila Vargas, and Diana Camargo Castelblanco
Publication Date:
08-2022
Content Type:
Policy Brief
Institution:
Centro Interdisciplinario de Estudios sobre Desarrollo (CIDER), Universidad de los Andes
Abstract:
Según cifras de las Naciones Unidas, cada año en el mundo mueren 1,3 millones de personas y 50 millones resultan heridas por accidentes de tráfico. El 90 % de esas muertes se producen en los países en desarrollo. En Colombia, una persona fallece en promedio cada 75 minutos a causa de siniestros viales. En 2019 murieron 7.000 colombianos en accidentes de tránsito y 35.000 quedaron con lesiones graves. En 2020 y 2021, incluso con las largas cuarentenas debidas a la pandemia del Covid-19, las cifras siguieron siendo alarmantes. Es la primera causa de muerte violenta de niñas y niños entre 10 y 14 años y la segunda causa de muerte violenta por lesión de causa externa superada solamente por el homicidio (INMLCF, 2019). La inmensa mayoría de estas muertes y lesiones son evitables, pero siguen siendo un importante problema de salud pública y de desarrollo con enormes consecuencias sociales y económicas. Se estima que estas muertes y lesiones cuestan hasta el 5 % del producto interno bruto anual para algunos países. Las muertes y lesiones causadas por accidentes de tráfico son también una cuestión de equidad social porque con mayor frecuencia los pobres y los vulnerables son también los usuarios que mayor peligro corren en las vías, es decir, peatones, ciclistas, usuarios de vehículos motorizados de dos y tres ruedas y pasajeros de medios de transporte público no seguros. Son ellos quienes se ven afectados y expuestos de manera desproporcionada a riesgos y accidentes de tráfico, que pueden llevar a un ciclo de pobreza agravada por la pérdida de ingresos. Para enfrentar esta problemática se han emprendido diversos esfuerzos a nivel global. Por ejemplo, en 2011 la Organización Mundial de la Salud (OMS) declaró como una pandemia las muertes por siniestros viales en el mundo y propuso la meta de reducir en 50% estas muertes para el 2021. La meta se logró en algunos países europeos, pero no se logró en ninguno de los países latinoamericanos. Frente a este rotundo fracaso, los Objetivos de Desarrollo Sostenible (ODS) y otras agendas de las Naciones Unidas establecieron metas que permitan reducir los accidentes de tráfico y promuevan los medios de transporte seguros y sostenibles. Entre las metas globales vigentes relacionadas con estos propósitos sobresalen el ODS 3.6, que busca “reducir a la mitad el número de muertes y lesiones causadas por accidentes de tráfico en el mundo"; y el ODS 11.2, que pretende “para 2030 proporcionar acceso a sistemas de transporte seguros, asequibles, accesibles y sostenibles para todos y mejorar la seguridad vial, en particular mediante la ampliación del transporte público”. Igualmente importante, y como resultado del trabajo realizado por el Foro Mundial para la Armonización de la Reglamentación sobre Vehículos (WP.29) promovido por la Comisión Económica para Europa de las Naciones Unidas (UNECE), se ha elaborado una normatividad para la armonización internacional de la regulación vehicular, reconocido internacionalmente como uno de los principales instrumentos para garantizar un alto nivel de seguridad, de protección del medio ambiente y de eficiencia energética de los vehículos. Colombia no ha sido partícipe de los reglamentos derivados del Foro Económico WP.29, pero viene realizando diferentes esfuerzos para el cumplimiento de los ODS 3.6 y ODS 11.2, mediante la modernización del sector transporte y el fortalecimiento de la normativa colombiana que permita cumplir con los estándares internacionales y las recomendaciones técnicas que tengan como propósito disminuir los siniestros viales. Este informe publicado por el Cider y UrbanPro surge como una primera aproximación a los efectos económicos de la incorporación de los reglamentos sobre seguridad vehicular del WP.29 en la industria automotriz y la economía colombiana, al analizar los posibles efectos de la homologación técnica en el precio de los vehículos, las ventas del sector y las principales variables macroeconómicas del país, como lo son el producto interno bruto, el consumo de los hogares y la balanza comercial. El análisis presentado en este documento es una primera aproximación de los efectos económicos más probables de la incorporación de los reglamentos generados por el WP.29 en la industria automotriz en Colombia, por lo que consta de múltiples supuestos que tienen como único objetivo compensar las carencias de información existentes. Frente a otros estudios existentes que abordan la seguridad de los vehículos en el país, el presente ejercicio sobresale por incorporar en su análisis un mayor porcentaje de vehículos que ingresan al mercado anualmente, por analizar más componentes seguridad respecto a los relacionados con la normatividad colombiana, y por determinar y analizar los costos por componente y por vehículo, sin utilizar costos promedio establecidos a nivel internacional.
Topic:
Development, Sustainable Development Goals, Macroeconomics, Public Health, and Vehicle Safety
Political Geography:
Colombia and South America

69. Low interest rates in Europe and the US: one trend, two stories

Author:
Maria Demertzis and Nicola Viegi
Publication Date:
03-2021
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
In both Europe and the United States, interest rates have been declining for more than fifteen years. For much of this period, real interest rates have been negative and they are expected to remain negative for at least another decade. The literature associates this decline in interest rates with a similarly protracted decline in productivity. But the decline in productivity appears paradoxical given major technological advances. The decline in the price of capital is underpinned by the factors that have caused a decline in demand for capital, as well as a relative increase in its supply. On the supply side, aging and an increase in overall macroeconomic risk since the financial crisis have both led to increased savings. On the demand side, the increase in the importance of intangible capital in production has reduced the demand for physical capital. Nevertheless, for the US, the literature has identified the increase in market concentration as the biggest factor responsible for the reduction in the overall demand for capital. Digital innovation has led to the creation of champion firms that have captured big market shares and have been able to prevent others from entering not only the US market, but markets globally. This has dampened investment. Europe is affected by US digital dominance, but other factors, including aging and increased risk, are more prominent in sustaining the downward pressure on interest rates. In particular, the lack of risk capital, in the context of capital markets, contributes to this downward pressure in the EU. As the knowledge economy relies increasingly on intangible capital, a bank-based system that requires collateral is not well suited to finance investments. A lack of suitable finance will remain an important factor in the downward pressure on interest rates. The structural factors behind the downward pressure on interest rates imply that macroeconomic policy will have a reduced role in managing aggregate demand. Monetary policy in the euro area will be more about preventing financial fragmentation and less about stimulating demand. Equally, fiscal policy will have more of a supporting rather than stimulating role. Tackling the structural decline in market dynamism and therefore in real rates will require structural policies to reduce market power globally and ensure the creation of capital markets in the EU.
Topic:
Monetary Policy, Governance, European Union, Finance, and Macroeconomics
Political Geography:
Europe, North America, and United States of America

70. Interest in European matters: a glass three-quarters full?

Author:
Francesco Papadia, Enrico Bergamini, Emmanuel Mourlon-Druol, and Giuseppe Porcaro
Publication Date:
03-2021
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
A disconnect between European Union integration and the level of interest of EU citizens in European matters is a potential weakness in the EU’s democratic foundations. The existence and possible size of this disconnect is a critical issue in assessing the potential for further integration of the EU and the risks to its stability. To move beyond qualitative assessments of this disconnect, we use three indicators to measure EU citizens’ interest in Europe: turnout in European Parliament elections relative to national elections, Eurobarometer surveys of interest in Europe, and the presence of European news in national newspapers, relative to all published news. We interpret our empirical results using three frameworks: Putnam’s social capital concept, the agenda-setting hypothesis and the no-demos hypothesis. All three indicators point to an increased interest in European matters, especially since the 1990s and the creation of the euro. However, this result does not settle the issue of whether the increased level of interest matches the actual state of integration of the EU’s member countries. Our results indicate the European construction maintains a technocratic character.
Topic:
Governance, European Union, Media, Populism, and Macroeconomics
Political Geography:
Europe