nep-mon New Economics Papers
on Monetary Economics
Issue of 2023‒02‒20
48 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Digital Money and Central Banks Balance Sheet By Adrian Armas; Mr. Manmohan Singh
  2. Monetary Policy Communication and Financial Markets in India By Mr. Faisal Ahmed; Mahir Binici; Mr. Jarkko Turunen
  3. Inflation expectations in the euro area: trends and policy considerations By Christophe Blot; Caroline Bozou; Jérôme Creel
  4. Asymmetric monetary policy rules for the euro area and the US By Junior Maih; Falk Mazelis; Roberto Motto; Annukka Ristiniemi
  5. Currency Competition with Firms By Maxi Guennewig
  6. Do Actions Speak Louder Than Words? Assessing the Effects of Inflation Targeting Track Records on Macroeconomic Performance By Mr. Zhongxia Zhang; Shiyi Wang
  7. Lessons from Haiti’s Recent Exchange Rate Developments By Neil Shenai; Ms. Rina Bhattacharya
  8. Information Acquisition ahead of Monetary Policy Announcements By Michael Ehrmann; Paul Hubert
  9. Welfare-enhancing inflation and liquidity premia By David Andolfatto; Fernando M. Martin
  10. Households' probabilistic inflation expectations in high-inflation regimes By Becker, Christoph; Dürsch, Peter; Eife, Thomas A.; Glas, Alexander
  11. Climate change and monetary policy By Eisei Ohtaki
  12. Automation and Nominal Rigidities By Takuji Fueki; Shinnosuke Katsuki; Ichiro Muto; Yu Sugisaki
  13. How Persistent are Climate-Related Price Shocks? Implications for Monetary Policy By Alain N. Kabundi; Jiaxiong Yao; Mr. Montfort Mlachila
  15. Global financial cycle and liquidity management By Damiano Sandri; Olivier Jeanne
  16. Optimal policy under dollar pricing By Egorov, Konstantin; Mukhin, Dmitry
  17. Biases in Survey Inflation Expectations: Evidence from the Euro Area By Mr. Jiaqian Chen; Lucyna Gornicka; Vaclav Zdarek
  18. The Bank of Amsterdam and the limits of fiat money By Wilko Bolt; Jon Frost; Hyun Song Shin; Peter Wierts
  19. U.S. and Euro Area Monetary and Fiscal Interactions During the Pandemic: A Structural Analysis By Jesper Lindé; Zoltan Jakab; Andrew Hodge; Vina Nguyen
  20. The post-covid inflation episode By Idoia Aguirre; Miguel Casares
  21. News of disinflation and firms' expectations: new causal evidence By Martin Caruso Bloeck; Miguel Mello; Jorge Ponce
  22. The Recent Rise in Discount Window Borrowing By Helene Lee; Asani Sarkar
  23. The Spending Cap and Monetary Policy Effectiveness By Ribeiro, Gustavo; Teles, Vladmir; Costa-Filho, João
  24. Understanding U.S. Inflation During the COVID Era By Mr. Daniel Leigh; Laurence M. Ball; Ms. Prachi Mishra
  25. A single monetary policy for heterogeneous labour markets: the case of the euro area By Gomes, Sandra; Jacquinot, Pascal; Lozej, Matija
  26. Inequality-Constrained Monetary Policy in a Financialized Economy By Luca Eduardo Fierro; Federico Giri; Alberto Russo
  27. Bond supply, price drifts and liquidity provision before central bank announcements By Lou, Dong; Pinter, Gabor; Uslu, Semih
  28. Effects of Rising Base Rates on Major Manufacturing Industries and Policymaking By Kim, Hyun Seok
  29. Updating Inflation Weights in the UK and Germany during COVID-19 By Mr. Francesco Grigoli; Evgenia Pugacheva
  30. A Theory of Fear of Floating By Javier Bianchi; Louphou Coulibaly
  31. Connected Lending of Last Resort By Kris James Mitchener; Eric Monnet
  32. Do output gap estimates improve inflation forecasts in Slovakia? By Nataliia Ostapenko
  33. Bitcoin Does Not Hedge Inflation By Mykola Pinchuk
  34. COVID-19 and Public Support for the Euro By Roth, Felix; Jonung, Lars; Most, Aisada
  35. Inflation Disparities by Race and Income Narrow By Rajashri Chakrabarti; Dan Garcia; Maxim L. Pinkovskiy
  36. Rural Households Hit Hardest by Inflation in 2021-22 By Rajashri Chakrabarti; Dan Garcia; Maxim L. Pinkovskiy
  37. Market Incompleteness and Exchange Rate Spill-over By Zhengyang Jiang
  38. Does climate change lead financial instability?: A benchmark result By Eisei Ohtaki
  39. Convergence on inflation and divergence on price-control among Post-Keynesian pioneers: insights from Galbraith and Lerner By Alexandre Chirat; Basile Clerc
  40. DeÂ…cit sustainability and the Fiscal Theory of the Price Level: the case of Italy, 1861-2020 By Emilio Congregado; Silviano Carmen Díaz-Roldán; Vicente Esteve
  41. International Capital Flow Pressures and Global Factors By Linda S. Goldberg; Signe Krogstrup
  42. How does monetary policy affect household indebtedness? By Andreas Fagereng; Magnus A. H. Gulbrandsen; Martin B. Holm; Gisle J. Natvik
  43. Young, Less Educated Faced Higher Inflation in 2021—But Gaps Now Closed By Rajashri Chakrabarti; Dan Garcia; Maxim L. Pinkovskiy
  44. Have Credit Card Services Become Important to Monetary Aggregation? An Application of Sign Restricted Bayesian VAR By William Barnett; Hyun Park
  45. Multiple Structural Breaks in Interactive Effects Panel Data and the Impact of Quantitative Easing on Bank Lending By Jan Ditzen; Yiannis Karavias; Joakim Westerlund
  46. Real Exchange Rate and International Reserves in the Era of Financial Integration By Joshua Aizenman; Sy-Hoa Ho; Luu Duc Toan Huynh; Jamel Saadaoui; Gazi Salah Uddin
  47. Efficiency of central clearing under liquidity stress By Bardoscia, Marco; Caccioli, Fabio; Gao, Haotian
  48. Is Stagflation the Norm? By Fix, Blair

  1. By: Adrian Armas; Mr. Manmohan Singh
    Abstract: Digital money is a logical step in a process of continuous technological advancement in payment systems. In response, central banks are reviewing their conduct of monetary operations in light of the new shape of financial markets and systems. The impact of digital money will depend on the type of money substitution by digital money. The paper straddles several cases where substitution of CiC (currency in circulation), and bank deposits may take place via digital money such as CBDC or other e-money, and how it would impact the central bank balance sheet. Remuneration of CBDC, if aligned to a new objective, could potentially amplify the effect on the interest rate channel of monetary policy.
    Keywords: CBDC; digital money; currency-in-circulation; bank deposits; central bank balance sheet; money base (M0); seigniorage; impact of digital money; dollarization level; central bank of Brazil; unit of account; central bank liability; Fiat currency; central bank FX; Digital currencies; Currencies; Central Bank digital currencies; Treasury bills and bonds; Global; Caribbean
    Date: 2022–10–28
  2. By: Mr. Faisal Ahmed; Mahir Binici; Mr. Jarkko Turunen
    Abstract: Forward-looking monetary policy communication has become a key element of flexible inflation-targeting regimes across advanced and emerging market economies. The Reserve Bank of India’s implementation of a flexible inflation targeting framework since 2016 has been supported by a broad set of communication tools, more recently aided by policy innovations such as forward guidance on policy rates and, asset purchases, increasing the predictability of monetary policy. A review of the recent innovations of monetary policy communications during the initial waves of the pandemic suggests forward guidance likely played a key role in moderating uncertainty and supporting some asset prices. We also find that the relationship between monetary policy surprises and yields for government and corporate securities across all maturities are positive and statistically significant. The results support an important role for monetary policy communication in guiding market expectations about the monetary policy stance, including the likely path of policy interest rates.
    Keywords: Monetary policy; communication; forward guidance; inflation targeting; India; monetary policy announcement; inflation-targeting regime; inflation targeting framework; asset purchase; monetary policy surprise; Monetary policy communication; Asset prices; Central bank policy rate; Inflation; Global
    Date: 2022–10–28
  3. By: Christophe Blot (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Caroline Bozou (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Jérôme Creel (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)
    Abstract: Most economic decisions of economic agents are based upon expectations of inflation. Inflation expectations play an important role for the determination of inflation and the transmission of monetary policy. They are not observable and are inferred from alternative indicators. We show that all these measures generally fail to predict inflation. We also assess their anchoring and show that long-term expectations are better anchored to the inflation target than inflation expectations at shorter horizons. This paper was provided by the Policy Departmentfor Economic, Scientific and Quality of Life Policies at the request of the committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 7 February 2022.
    Keywords: central bank, economic forecasting, euro area, inflation, monetary policy
    Date: 2022–01
  4. By: Junior Maih; Falk Mazelis; Roberto Motto; Annukka Ristiniemi
    Abstract: We analyse the implications of asymmetric monetary policy rules by estimating Markovswitching DSGE models for the euro area (EA) and the US. The estimations show that until mid-2014 the ECB's response to inflation was more forceful when inflation was above 2% than below 2%. Since then, the ECB's policy can be characterised as symmetric, and we quantify the macroeconomic implications of this policy change. We uncover asymmetries also in the Fed's policy, which has responded more strongly in times of crisis. We compute an optimal simple rule for the EA and the US in an environment with the effective lower bound and a low neutral real rate, and find that it prescribes a stronger response to inflation and the output gap when inflation is below target compared to when it is above target. We document its stabilisation properties had this optimal rule been implemented over the last two decades.
    Keywords: inflation targeting, optimal monetary policy, effective lower bound, Bayesian estimation, Markov-switching DSGE
    JEL: E52 E58 E31 E32
  5. By: Maxi Guennewig
    Abstract: This paper analyses the consequences for monetary policy if firms issue money which generates seignorage revenues and information on consumers. I present a benchmark economy with a unique monetary equilibrium in which firms form digital currency areas if information rents are large. The central bank loses its autonomy and is forced to implement deflationary monetary policy. I extend the benchmark to show that the central bank may regain policy autonomy when firms form currency consortia with decision powers and claims on seignorage concentrated in the hands of one firm.
    Keywords: Digital Currencies, Currency Competition, Seignorage Information, Facebook, Monetary Policy
    JEL: E4 E5 G2
    Date: 2022–12
  6. By: Mr. Zhongxia Zhang; Shiyi Wang
    Abstract: Inflation Targeting (IT) has become a prevalent monetary policy framework in the past three decades, as more central banks adopted and maintained price stability as their primary monetary policy mandate. Using a dataset of 68 major advanced countries and emerging markets economies, this paper evaluates the effects of inflation targeting countries’ track records on their macroeconomic performance, measured by real GDP growth and CPI inflation. This paper constructs three novel inflation targeting track record measures and establishes new stylized facts on the heterogeneity of inflation targeting countries’ tendency in managing inflation with respect to their stated objectives. This paper finds evidence that most targeters conduct dynamic inflation targeting by frequently updating inflation target bands, and their band sizes are wide-ranging across IT countries. We empirically study the contemporaneous and future effects of inflation targeting track records on countries’ macroeconomic performance. Results from the dynamic panel and local projection regressions suggest that better IT track records do not lead to superior growth and inflation rates in the short term.
    Keywords: inflation targeting; track records; dynamic target points and ranges; economic growth and inflation.; novel inflation targeting track record measure; inflation target band; countries' track records; effects of inflation targeting track records; better IT; Inflation; Monetary policy frameworks; Nominal effective exchange rate; Commodity price fluctuations; Global
    Date: 2022–11–11
  7. By: Neil Shenai; Ms. Rina Bhattacharya
    Abstract: From August to October 2020, the Haitian authorities were successful at bringing about a sharp appreciation in the gourde/U.S. dollar exchange rate. This paper analyzes the factors behind this appreciation and its spillovers on the economy. It finds that foreign exchange surrender requirements had a statistically significant effect on the nominal exchange rate, while foreign exchange intervention by the central bank did not. Surrender requirements were also found to have raised trading costs and volatility in the foreign exchange market and contributed to the development of a wider parallel nominal exchange rate premium. This appreciation contributed to a decline in headline inflation during the episode while delivering some fuel subsidy-related savings to the government. Remittance-dependent households and exporters saw a drop in their purchasing power, and Haiti’s net external buffers were adversely affected. Following from these findings, the paper offers recommendations on ways to facilitate foreign exchange management and boost external sustainability while contributing to the central bank’s overall policy objectives.
    Keywords: Haiti foreign exchange rate; fragile state monetary policy; foreign exchange surrender requirements; foreign exchange intervention in fragile states; reserve money programming in fragile states; exchange rate development; IMF working paper 22/225; Haiti foreign exchange exchange rate; foreign exchange management; money supply; Currency markets; Nominal effective exchange rate; Exchange rates; Exchange rate arrangements; Caribbean; Global; Central America; Sub-Saharan Africa
    Date: 2022–11–11
  8. By: Michael Ehrmann; Paul Hubert
    Abstract: How do financial markets acquire information about upcoming monetary policy decisions, beyond their reaction to central bank signals? This paper hypothesises that sharing information among investors can improve expectations, especially in the presence of disagreement or uncertainty about the economy. To test this hypothesis, the paper studies monetary policy-related content on Twitter during the “quiet period” before European Central Bank announcements, when policymakers refrain from public statements related to monetary policy. Conditional on large disagreement about the economic outlook, higher Twitter traffic is associated with smaller monetary policy surprises, suggesting that exchanging private signals among investors can help improve expectations.
    Keywords: Central Bank Communication, Quiet Period, Twitter, Market Expectations, Information Processing
    JEL: D83 E52 E58 G14
    Date: 2022
  9. By: David Andolfatto; Fernando M. Martin
    Abstract: The Friedman rule recommends eliminating liquidity premia on nominally risk-free government debt and following a deflationary monetary policy. The desirability of this prescription in a broad class of monetary models contrasts sharply with observation. In reality, the average rate of inflation is almost always positive and long-dated government securities are–as a matter of policy–allowed to trade at a discount relative to cash, even when these securities represent risk-free claims to cash. Our paper identifies a set of empirically-plausible conditions under which a strictly positive inflation and liquidity premium on long-dated government securities are both necessary to improve economic welfare. These conditions include: heterogeneous time-preferences, idiosyncratic risk over the timing of expenditure opportunities, and incomplete insurance markets. Our paper provides yet another rationale for a strictly positive inflation target and the use of penalty rates at central bank lending facilities.
    Keywords: Friedman rule; liquidity; inflation; term premium
    JEL: E4 E5
    Date: 2023–01
  10. By: Becker, Christoph; Dürsch, Peter; Eife, Thomas A.; Glas, Alexander
    Abstract: Central bank surveys frequently elicit households' probabilistic beliefs about future inflation. The responses provide only a coarse picture of inflation beliefs further away from zero. Using data from the Bundesbank household panel, we show that the current high-inflation environment induces respondents to allocate considerable probability to the rightmost open interval. This pile-up of probabilities negatively affects estimates of histogram moments and leads to a divergence between average expected inflation measured by probabilistic and point forecasts. The consistency of predictions can be improved by using an alternative design of the response scale that allows respondents to state more detailed beliefs for higher inflation ranges.
    Keywords: Probabilistic expectations, inflation, survey data
    JEL: D84 E31 E58
    Date: 2023
  11. By: Eisei Ohtaki
    Abstract: Motivated by recent climate actions of central banks and supervisors, this study develops an overlapping generations model of the environment and money and explores a role of monetary policy on climate problems. It is shown that a stationary monetary equilibrium exists uniquely but be suboptimal so that this study explores optimal policies. When a policymaker can control money growth rates only, any monetary policy cannot attain an optimal allocation but a certain positive money growth rate can be the second-best policy. In contrast, when a policymaker can choose tax instruments in addition to money growth rates, there exists a continuum of optimal combinations of money growth rates and tax instruments, which implement an optimal allocation as a stationary monetary equilibrium allocation. These results suggest that, to resolve climate problems, monetary and fiscal authorities need to coordinate with each other.
    Date: 2023–01
  12. By: Takuji Fueki (Director and senior economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Lecturer, Kagawa University, E-mail:; Shinnosuke Katsuki (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Ichiro Muto (Associate Director-General, Institute for Monetary and Economic Studies (currently, General Manager, Aomori Branch), Bank of Japan (E-mail:; Yu Sugisaki (Economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Boston College, E-mail:
    Abstract: This study examines how automation can have an impact on the effectiveness of monetary policy and inflation dynamics. We incorporate a task-based production technology into a standard New Keynesian model with two kinds of nominal rigidities (price/wage rigidity). When monetary easing raises wages, automation opportunities allow firms to substitute costly human labor with cheaper machines. This yields the automation effect of monetary policy, which increases labor productivity and magnifies the rise in real output. In turn, automation lowers real marginal costs for firms, thereby restraining the rise of inflation and flattening the Phillips curve. When prices are rigid and wages are flexible, the automation effect of monetary policy is particularly large, and the flattening of the Phillips curve is most pronounced. The automation effect also depends on the automation frontier, i.e., the remaining opportunities for automation, and a kinked Phillips curve emerges when firms face technological constraints on automation.
    Keywords: Automation, Monetary policy, Nominal rigidities, Phillips curve
    JEL: E22 E31
    Date: 2023–01
  13. By: Alain N. Kabundi; Jiaxiong Yao; Mr. Montfort Mlachila
    Abstract: Climate change is likely to lead to more frequent and more severe supply and demand shocks that will present a challenge to monetary policy formulation. The main objective of the paper is to investigate how climate shocks affect consumer prices in a broad range of countries over a long period using local projection methods. It finds that the impact of climate shocks on inflation depends on the type and intensity of shocks, country income level, and monetary policy regime. Specifically, droughts tend to have the highest overall positive impact on inflation, reflecting rising food prices. Interestingly, floods tend to have a dampening impact on inflation, pointing to the predominance of demand shocks in this case. Over the long run, the dominant monetary policy paradigm of flexible inflation targeting faced with supply-induced climate shocks may become increasingly ineffective, especially in LIDCs. More research is needed to find viable alternative monetary policy frameworks.
    Keywords: climate change; monetary policy; monetary policy models; food price inflation drought; monetary policy paradigm; supply and demand shock; IMF working paper 22/207; IT country; Natural disasters; Inflation; Monetary policy frameworks; Global; Caribbean
    Date: 2022–10–28
  14. By: Xavier Ragot (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)
    Abstract: This paper derives the optimal money injection at the Zero Lower Bound (ZLB), in a tractable model where households hold heterogeneous money holdings due to explicit financial frictions, such as limited participation and temporary binding credit constraints. This framework is motivated by recent empirical findings. A deleveraging shock generates deflationary pressure and a fall in the real interest rate, pushing the economy to the ZLB. The main result is that open-market operations can stabilize the economy at the ZLB whereas lump-sum money transfers cannot. Moreover, an optimal money injection does not avoid the economy being at the ZLB.
    Keywords: liquidity trap, zero lower bound, heterogeneous agents, optimal policy
    Date: 2023
  15. By: Damiano Sandri; Olivier Jeanne
    Abstract: We use a tractable model to show that emerging markets can protect themselves from the global financial cycle by expanding (rather than restricting) capital flows. This involves accumulating foreign liquid assets when global liquidity is high to then buy back domestic assets at a discount when global financial conditions tighten. Since the private sector does not internalize how this buffering mechanism reduces international borrowing costs, a social planner increases the size of capital flows relative to the laissez-faire equilibrium. The model also shows that foreign exchange interventions may be preferable to capital controls in less financially developed countries.
    Keywords: capital flows, foreign exchange reserves, sudden stop, capital flow management, capital controls
    JEL: F31 F32 F36 F38
    Date: 2023–01
  16. By: Egorov, Konstantin; Mukhin, Dmitry
    Abstract: Recent empirical evidence shows that most international prices are sticky in dollars. This paper studies the policy implications of this fact in the context of an open economy model, allowing for an arbitrary structure of asset markets, general preferences and technologies, time- or state-dependent price setting, and a rich set of shocks. We show that although monetary policy is less eftcient and cannot implement the flexible-price allocation, inflation targeting and a floating exchange rate remain robustly optimal in non-U.S. economies. The capital controls cannot unilaterally improve the allocation and are useful only when coordinated across countries. Thanks to the dominance of the dollar, the U.S. can extract rents in international goods and asset markets and enjoy a higher welfare than other economies. Although international cooperation beneffts other countries by improving global demand for dollar-invoiced goods, it is not in the self-interest of the U.S. and may be hard to sustain.
    Date: 2023
  17. By: Mr. Jiaqian Chen; Lucyna Gornicka; Vaclav Zdarek
    Abstract: This paper documents five facts about inflation expectations in the euro area. First, individual inflation forecasts overreact to individual news. Second, the cross-section average of individual forecasts of inflation underreact to shocks initially, but overreacts in the medium term. Third, disagreement about future inflation increases in response to news when the current inflation is high, and declines when inflation is low, consistent with a zero lower bound of expectations. Fourth, overreaction of individual inflation forecasts to news increased after the global financial crisis (GFC). Fifth, the reaction of average expectations (and of actual inflation) to shocks became more muted post-GFC in the euro area, but not in the U.S.
    Keywords: expectations formation; surveys of expectations; informational rigidities; inflation expectation; survey inflation expectation; responses of inflation expectation; forecasts of inflation; Inflation; Zero lower bound; Oil production; Supply shocks; Global
    Date: 2022–09–30
  18. By: Wilko Bolt; Jon Frost; Hyun Song Shin; Peter Wierts
    Abstract: Central banks can operate with negative equity, and many have done so in history without undermining trust in fiat money. However, there are limits. How negative can central bank equity be before fiat money loses credibility? We address this question using a global games approach motivated by the fall of the Bank of Amsterdam (1609–1820). We solve for the unique break point where negative equity and asset illiquidity renders fiat money worthless. We draw lessons on the role of fiscal support and central bank capital in sustaining trust in fiat money.
    Keywords: central banks; negative equity; fiat money; trust
    JEL: E42 E58 N13
    Date: 2023–02
  19. By: Jesper Lindé; Zoltan Jakab; Andrew Hodge; Vina Nguyen
    Abstract: This paper employs a two-country New Keynesian DSGE model to assess the macroeconomic impact of the changes in monetary policy frameworks and the fiscal support in the U.S. and euro area during the pandemic. Moving from a previous target of “below, but close to 2 percent” to a formal symmetric inflation targeting regime in the euro area or from flexible to average inflation targeting in the U.S. is shown to boost output and inflation in both regions. Meanwhile, the fiscal packages approved in the U.S. and the euro area, and a slower withdrawal of fiscal support in the euro area, have a similar impact on output and inflation as changing the monetary policy frameworks . Simultaneously implementing these policies is mutually reinforcing, but insufficient to fully explain the unexpected increase in core inflation during 2021.
    Keywords: Fiscal Policy; Monetary Policy; DSGE Model; inflation targeting in the U.S.; IMF working paper 22/222; changes in the U.S.; Phillips curve; AIT gap; Inflation; Fiscal stimulus; Interest rate floor; Public investment spending; Central bank policy rate; Global; Western Hemisphere
    Date: 2022–11–11
  20. By: Idoia Aguirre (Departamento de Economia, Universidad Publica de Navarra); Miguel Casares (Departamento de Economia, Universidad Publica de Navarra)
    Abstract: The recent inflation episode has been examined in an estimated New Keynesian model. The rise of US price inflation resulted from a combination of price-push shocks (45%), wage-push shocks (24%), expansionary monetary policy shocks (21%) and shocks that reduced the labor force (9%). On the projections of the disinflation path, results indicate that if either prices or wages are further indexed to lagged inflation, wage inflation will be higher and the price disinflation will slow down. Also, a severe tightening of Fed's monetary policy will barely reduce inflation at the cost of higher unemployment.
    Date: 2023
  21. By: Martin Caruso Bloeck (University of California, Berkeley); Miguel Mello (Banco Central del Uruguay); Jorge Ponce (Banco Central del Uruguay)
    Abstract: We causally identify how firms’ inflation and growth expectations respond to information about a comprehensive reform in the monetary policy framework by means of a randomized control trial. The reform is intended to lower inflation significantly in the coming years, making this experiment unique relative to previous ones that are carried out in stable and consolidated monetary policy frameworks. Firms treated with information about the reform lower their inflation and cost expectations by about 0.5 percentage points, with the effect being persistent sixth months after the treatment. Treated firms also expect temporarily lower GDP growth.
    Keywords: Inflation expectations, economic expectations, disinflation, monetary policy communication, randomized control trial, firms' survey
    JEL: C23 E52 E58
    Date: 2022
  22. By: Helene Lee; Asani Sarkar
    Abstract: The Federal Reserve’s primary credit program—offered through its “discount window” (DW)—provides temporary short-term funding to fundamentally sound banks. Historically, loan activity has been low during normal times due to a variety of factors, including the DW’s status as a back-up source of liquidity with a relatively punitive interest rate, the stigma attached to DW borrowing from the central bank, and, since 2008, elevated levels of reserves in the banking system. However, beginning in 2022, DW borrowing under the primary credit program increased notably in comparison to past years. In this post, we examine the factors that may have contributed to this recent trend.
    Keywords: discount window; stigma; borrowing; Federal Home Loan Banks (FHLBs); reserves; banks; pandemic; Lender of Last Resort; Federal Reserve
    JEL: E5 G2
    Date: 2023–01–17
  23. By: Ribeiro, Gustavo; Teles, Vladmir; Costa-Filho, João
    Abstract: What is the impact on the transmission of monetary policy in Brazil under the fiscal ceiling implemented in 2016? We find empirical evidence of the response of fiscal variables to monetary policy shocks by estimating a dynamic model factor. Then, we analyze whether the imposition of an expenditure ceiling affected monetary policy effectiveness in Brazil. We propose a heterogeneous-agents new keynesian model (HANK) to the Brazilian economy with s spending cap and find that the expenditure ceiling adopted by the country might have “muted” a fiscal transmission channel for monetary policy, reducing its impact on the output gap.
    Keywords: Monetary Policy; Fiscal Policy; HANK; Brazil
    JEL: E12 E21 E24 E43 E52 E62
    Date: 2023–01–26
  24. By: Mr. Daniel Leigh; Laurence M. Ball; Ms. Prachi Mishra
    Abstract: This paper analyzes the dramatic rise in U.S. inflation since 2020, which we decompose into a rise in core inflation as measured by the weighted median inflation rate and deviations of headline inflation from core. We explain the rise in core with two factors, the tightening of the labor market as captured by the ratio of job vacancies to unemployment, and the pass-through into core from past shocks to headline inflation. The headline shocks themselves are explained largely by increases in energy prices and by supply chain problems as captured by backlogs of orders for goods and services. Looking forward, we simulate the future path of inflation for alternative paths of the unemployment rate, focusing on the projections of Federal Reserve policymakers in which unemployment rises only modestly to 4.4 percent. We find that this unemployment path returns inflation to near the Fed’s target only under optimistic assumptions about both inflation expectations and the Beveridge curve relating the unemployment and vacancy rates. Under less benign assumptions about these factors, the inflation rate remains well above target unless unemployment rises by more than the Fed projects.
    Keywords: Inflation; Covid; Fed project; unemployment path; Fed's target; inflation gap; inflation expectation; Unemployment rate; Unemployment; Labor markets; COVID-19; Baltics
    Date: 2022–10–28
  25. By: Gomes, Sandra; Jacquinot, Pascal; Lozej, Matija
    Abstract: Differences in labour market institutions and regulations between countries of the monetary union can cause divergent responses even to a common shock. We augment a multi-country model of the euro area with search and matching framework that differs across Ricardian and hand-to-mouth households. In this setting, we investigate the implications of cross-country heterogeneity in labour market institutions for the conduct of monetary policy in a monetary union. We compute responses to an expansionary demand shock and to an inflationary supply shock under the Taylor rule, asymmetric unemployment targeting, and average inflation targeting. For each rule we distinguish between cases with zero weight on the unemployment gap and a negative response to rising unemployment. Across all rules, responding to unemployment leads to lower losses of employment and higher inflation. Responding to unemployment reduces cross-country differences within the monetary union and the differences in consumption levels of rich and poor households. JEL Classification: E24, E32, E43, E52, F45
    Keywords: business cycles, DSGE modelling, monetary union, search and matching
    Date: 2023–01
  26. By: Luca Eduardo Fierro; Federico Giri; Alberto Russo
    Abstract: We study how income inequality affects monetary policy through the inequality-household debt channel. We design a minimal macro Agent-Based model that replicates several stylized facts, including two novel ones: falling aggregate saving rate and decreasing bankruptcies during the household's debt boom phase. When inequality meets financial liberalization, a leaning against-the-wind strategy can preserve financial stability at the cost of high unemployment, whereas an accommodative strategy, i.e. lowering the policy rate, can dampen the fall of aggregate demand at the cost of larger leverage. We conclude that inequality may constrain the central bank, even when it is not explicitly targeted.
    Keywords: Inequality; Financial Fragility; Monetary Policy; Agent-Based Model.
    Date: 2023–01–25
  27. By: Lou, Dong (London School of Economics); Pinter, Gabor (Bank of England); Uslu, Semih (John Hopkins Carey)
    Abstract: We document that UK government bond yields systematically rise in a two-day window before Monetary Policy Committee (MPC) meetings, which we refer to as pre-MPC windows. The effect concentrates on pre-MPC windows that coincide with new issuance of government bonds. Decomposing the effect into an expected short-rate and a risk premium component, we find that the majority of the yield drift is attributed to increases in risk premia. These effects are present in the US as well. Using UK transaction-level data and analysing trading activity after primary issuances, we find that the dealer sector sells significantly more to the client sector during pre-MPC windows, consistent with dealers’ limited risk-bearing capacity. Importantly, we find significant changes in the composition of liquidity providers: hedge funds buy a large share of the issue outside pre-MPC windows, but they shy away from liquidity provision in pre-MPC windows, being replaced by less speculative investors such as foreign government entities and pension funds. We propose a theoretical model to rationalise the change in the composition of liquidity providers before high-informational events, which can also explain the price drift observed in the data.
    Keywords: monetary policy announcements; price drift; bond supply
    JEL: E52 E63 G10 G20
    Date: 2022–10–21
  28. By: Kim, Hyun Seok (Korea Institute for Industrial Economics and Trade)
    Abstract: Soaring inflationary pressure and the ripple effects of the base rate spikes by the US Federal Reserve are expected to lead the Bank of Korea (BOK) to raise its base rate at least three times during the remainder of 2022. Korean firms rely primarily on indirect financing for their financial needs as the Korean capital market is strongly bank-based. However, small and medium-sized enterprises (SMEs) are far more dependent than large corporations on indirect financing. Monetary policy changes involving interest rates therefore exert a significantly greater impact on SMEs than they do on large corporations, and changes in monetary policy are estimated to transfer greater costs onto SMEs than onto large corporations. Whether in the short term or the long term, the burden of rising interest rates faced by SMEs is greater than that faced by large corporations. Low liquidity, high inflation rates, negative consumer sentiment, and excessive outstanding debt all threaten to increase risks to Korean capital markets today. Industries dominated by SMEs are expected to see their interest coverage ratios drop significantly and the percentage of zombie firms grow amid rising interest rates. This paper identifies the proactive policy action necessary needed to minimize the repercussions of rising base rates on industries where SMEs are concentrated.
    Keywords: capital markets; interest rates; monetary policy; Korea; base rate; small and medium-sized enterprises; SMEs; zombie firms; zombies; inflation; consumer sentiment; debt; financing
    JEL: E31 E32 E43 E44 E51 E52 E58 G18 G21 G23 G28 G32 G33 G38 H12 H24 H25
    Date: 2022–04–04
  29. By: Mr. Francesco Grigoli; Evgenia Pugacheva
    Abstract: The COVID-19 pandemic altered consumption patterns significantly in a short period of time. However, official inflation statistics take time to reflect these changes in the weights of the CPI consumption basket. Using credit card data for the UK and Germany, we document how consumption patterns changed and we quantify the resulting inflation bias. We find that consumers experienced a higher level of inflation at the beginning of the pandemic than what a fixed-weight inflation (or the official-weight) index suggests and a lower inflation thereafter. We also show that weights can differ among age groups as well as between in-person and online spenders. These differences affect the purchasing power of the population heterogeneously. We conclude that CPI inflation indexes based on frequently updated weights can provide useful inputs to assess changes in the cost of living and, if shifts in consumption patterns prove persistent, determine the need to introduce new official weights and inform monetary policy.
    Keywords: aggregation; consumer behaviour; consumer price index; COVID-19; inflation; weights; CPI inflation index; inflation bias; inflation statistics; inflation index; CPI category; Consumer price indexes; Consumption; Consumer credit
    Date: 2022–09–30
  30. By: Javier Bianchi; Louphou Coulibaly
    Abstract: Many central banks whose exchange rate regimes are classified as flexible are reluctant to let the exchange rate fluctuate. This phenomenon is known as “fear of floating”. We present a simple theory in which fear of floating emerges as an optimal policy outcome. The key feature of the model is an occasionally binding borrowing constraint linked to the exchange rate that introduces a feedback loop between aggregate demand and credit conditions. Contrary to the Mundellian paradigm, we show that a depreciation can be contractionary, and letting the exchange rate float can expose the economy to self-fulfilling crises.
    JEL: E44 E52 F33 F34 F36 F41 F45 G01
    Date: 2023–01
  31. By: Kris James Mitchener; Eric Monnet
    Abstract: Because of secrecy, little is known about the political economy of central bank lending. Utilizing a novel, hand-collected historical daily dataset on loans to commercial banks, we analyze how personal connections matter for lending of last resort, highlighting the importance of governance for this core function of central banks. We show that, when faced with a banking panic in November 1930, the Banque de France (BdF) lent selectively rather than broadly, providing substantially more liquidity to connected banks – those whose board members were BdF shareholders. The BdF’s selective lending policy failed to internalize a negative externality – that lending would be insufficient to arrest the panic and that distress via contagion would spillover to connected banks. Connected lending of last resort fueled the worst banking crisis in French history, caused an unprecedented government bailout of the central bank, and resulted in loss of shareholder control over the central bank.
    Keywords: lender of last resort, fiscal backing, central-bank solvency, central-bank design, banking crises, central bank independence, Banque de France, Great Depression
    JEL: E44 E58 G01 G32 G33 G38 N14 N24
    Date: 2023
  32. By: Nataliia Ostapenko (National Bank of Slovakia)
    Abstract: The paper compares different output gap measures regarding their real-time reliability and usefulness for predicting inflation in Slovakia. The results indicate that estimated cycles from the Modified Hamilton filter, a Mixed-Frequency Bayesian Vector Autoregression and a Dynamic Factor Model are economically reasonable, similar in magnitudes to the official central bank estimate and, more importantly, stable over time. Furthermore, among all compared output gap estimates, the gap from the Mixed-Frequency Vector Autoregression can predict Slovak inflation better than other estimates of the cyclical position until the recent period of high inflation in 2021–2022.
    JEL: C11 C32 E31 E32
    Date: 2022–10
  33. By: Mykola Pinchuk
    Abstract: This paper examines the response of major cryptocurrencies to macroeconomic news announcements (MNA). While other cryptocurrencies exhibit no reaction to major MNA, Bitcoin responds negatively to inflation surprise. Price of Bitcoin decreases by 24 bps in response to a 1 standard deviation inflationary surprise. This reaction is inconsistent with widely-held beliefs of practitioners that Bitcoin can hedge inflation. I do not find support for the hypothesis that the negative response of Bitcoin to inflation is due to its negative exposure to interest rates. Instead, I find support for the hypothesis that Bitcoin is strongly affected by the shift in consumption-savings decisions, driven by the rise in inflation. Consistent with this view, Bitcoin has negative exposure to a proxy for the consumption-savings ratio.
    Date: 2023–01
  34. By: Roth, Felix (University of Hamburg); Jonung, Lars (Department of Economics, Lund University); Most, Aisada (University of Hamburg)
    Abstract: The COVID-19 pandemic had disastrous effects on health and economic activity worldwide, including in the Euro Area. The application of mandatory lockdowns contributed to a sharp fall in production and a rise in unemployment, inducing an expansionary fiscal and monetary response. Using a uniquely large macro database, this paper examines the effects of the pandemic and the ensuing economic policies on public support for the common currency, the euro, as measured by the Eurobarometer survey. It finds that public support for the euro reached historically high levels in a majority of the 19 Euro Area member states in the midst of the pandemic. This finding suggests that the expansionary fiscal policies initiated at the EU level significantly contributed to this outcome, while the monetary measures taken by the European Central Bank did not have a similar effect.
    Keywords: COVID-19; lockdowns; support for the euro; unemployment; inflation; monetary policies; fiscal policies; EU
    JEL: C23 E24 E42 E52 E62 I18
    Date: 2023–02–06
  35. By: Rajashri Chakrabarti; Dan Garcia; Maxim L. Pinkovskiy
    Abstract: As inflation has risen to forty-year highs, inflation inequality—disparities in the rates of inflation experienced by different demographic and economic groups– has become an increasingly important concern. In this three-part blog series, we revisit our main finding from June—that inflation inequality has increased across racial and ethnic groups—and provide estimates of differential inflation rates across groups based on income, education, age, and geographic location. We also use an updated methodology for computing inflation disparities by focusing on more disaggregated categories of spending, which corroborates our earlier findings and substantiates our conclusion that inflation inequality is a pronounced feature of the current inflationary episode.
    Keywords: inflation; inequality; race; income distribution
    JEL: D63 E31
    Date: 2023–01–18
  36. By: Rajashri Chakrabarti; Dan Garcia; Maxim L. Pinkovskiy
    Abstract: To conclude our series, we present disparities in inflation rates by U.S. census region and rural status between June 2019 and the present. Notably, rural households were hit by inflation the hardest during the 2021-22 inflationary episode. This is intuitive, as rural households rely on transportation, and especially on motor fuel, to a much greater extent than urban households do. More generally, the recent rise in inflation has affected households in the South more than the national average, and households in the Northeast by less than the national average, though this difference has decreased in the last few months. Once again, these changes in inflation patterns can be explained by transportation inflation driving a large extent of price rises during 2021 and much of 2022, with housing and food inflation lately coming to the fore.
    Keywords: inflation; inequality; rural areas; census; Regions
    JEL: D63 E31
    Date: 2023–01–18
  37. By: Zhengyang Jiang
    Abstract: I develop a general characterization of the effect that market incompleteness has on exchange rate dynamics. On the one hand, it weakens the pass-through from a country's marginal utility shocks to its own exchange rate movements; on the other hand, it gives rise to additional variations in exchange rates and propagates one country's marginal utility shocks to other countries' exchange rate movements. This novel international spill-over effect gives rise to both exchange rate disconnect from local fundamentals and exchange rate comovements in the cross-section of currencies, offering a novel channel for understanding these salient features of exchange rate behaviors.
    JEL: F31 G15
    Date: 2023–01
  38. By: Eisei Ohtaki
    Abstract: Does climate change lead financial instability? To address this problem, this study builds an overlapping generations model of the environment and money. Contrary to predictions of the majority, it is shown that, under a certain condition, a unique stationary monetary equilibrium exists and is a saddle point. Furthermore, it is shown that the optimal gross rate of money growth, which maximizes the welfare at the stationary monetary equilibrium, exists uniquely and is greater than one.
    Date: 2023–01
  39. By: Alexandre Chirat; Basile Clerc
    Abstract: This article proposes a historical and analytical reconstruction of a debate that never happened between John Kenneth Galbraith and Abba Lerner over the issue of price controls. While they adopted a similar analysis of underemployment inflation, shared by many post Keynesians, Lerner and Galbraith remained fundamentally opposed as to the effectiveness of price controls. Indeed, while both agreed on the relevance of price controls in the specific context of World War II, they disagreed over including price controls within the conventional framework of economic policies, as illustrated by their respective stances in the debate surrounding the stagflation of the 1970s. Throughout the paper, we provide the rationales behind their divergence on price controls by investigating its theoretical, epistemological, and normative roots. Finally, we put into perspective the contemporary debates about price control in the context of resurgent inflationary pressures with some salient points drawn from our reconstruction of the debate that opposed these two pioneering post Keynesians economists.
    Keywords: Price control - Wage control - Inflation - Unemployment - Stagflation
    JEL: B22 B31 E12 E64
    Date: 2023
  40. By: Emilio Congregado (Universidad de Huelva, Spain); Silviano Carmen Díaz-Roldán (Universidad de Castilla-La Mancha, Spain); Vicente Esteve (Universidad de Valencia and Universidad de Alcalá, Spain)
    Abstract: We address a test for sustainability of the Italian government deficit over the period 1861-2020, using the fiscal theory of the price level (FTPL). This approach takes into account monetary and fiscal policy interactions and assumes that fiscal policy may determine the price level, even if monetary authorities pursue an inflation targeting strategy. We use a cointegrated model with multiple structural changes to characterize the sustainability of public finances and the prevalence of monetary versus fiscal dominance for sub-periods. We also use the recursive unit root tests for explosiveness to test Â…fiscal sustainability and to detect episodes of potential explosive behavior in Italian public debt.
    Keywords: Fiscal Theory of the Price Level; Monetary and …fiscal dominance; Fiscal sustainability; In‡ation; Public debt; Explosiveness; Cointegration; Multiple structural breaks
    JEL: E62 H62 O52
    Date: 2023–01
  41. By: Linda S. Goldberg; Signe Krogstrup
    Abstract: The risk sensitivity of international capital flow pressures is explored using a new Exchange Market Pressure index that combines pressures observed in exchange rate adjustments with model-based estimates of incipient pressures that are masked by foreign exchange interventions and policy rate adjustments. The sensitivity of capital flow pressures to risk sentiment including for so-called safe haven currencies, evolves over time, varies significantly across countries, and differs between normal time and extreme stress events. Across countries, risk sensitivities and safe haven status are associated with self-fulfilling exchange rate expectations and carry trade funding currencies. In contrast, association with more traditional macroeconomic country characteristics is weak.
    JEL: F32 G11 G20
    Date: 2023–01
  42. By: Andreas Fagereng; Magnus A. H. Gulbrandsen; Martin B. Holm; Gisle J. Natvik
    Abstract: Households’ debt-to-income ratios change due to (a) primary deficits or (b) "Fisher effects" from interest costs, income growth, and inflation. With Norwegian micro data, we estimate how monetary policy affects household indebtedness by debt levels. In response to interest rate hikes, channel (a) pulls debt-to-income ratios down while channel (b) pushes debt-to-income ratios up. Channel (a) dominates even among highly indebted households where Fisher effects are forceful. However, among indebted households with high unemployment risk, we find no discernible effect on debt-to-income ratios, indicating that monetary policy has limited potential to contain debt where the largest risks are concentrated.
    Date: 2021–08
  43. By: Rajashri Chakrabarti; Dan Garcia; Maxim L. Pinkovskiy
    Abstract: We continue our series on inflation disparities by looking at disparities in inflation rates by educational attainment and age for the period June 2019 to the present. Remarkably, we find that disparities by age and education are considerably larger than those by income and are similar in size to those by race and ethnicity, both explored in our previous post. Specifically, during the inflationary period of 2021-22, younger people and people without a college degree faced the highest inflation, with steadily widening gaps relative to the overall average between early 2021 and June 2022, followed by a rapid narrowing of the gaps and a reversal of some of them by December 2022. This pattern arises primarily from a greater share of the expenditures of younger people and people without a college degree being devoted to transportation—particularly used cars and motor fuel—which led the 2021 inflationary episode but has since converged to general inflation.
    Keywords: inflation; inequality; education; age
    JEL: D63 J24 E31
    Date: 2023–01–18
  44. By: William Barnett (Department of Economics, University of Kansas, Lawrence, KS 66045, USA and Center for Financial Stability, New York City, NY 10036, USA); Hyun Park (Department of Economics, Tulane University, New Orleans, LA 70123, USA)
    Abstract: The purpose of this paper is to estimate the relationship among a primary set of economic variables, including two types of monetary aggregates: simple sum M2 and credit-card-augmented Divisia inside money services. The importance of that comparison has grown as the use of credit cards in purchase transactions has expanded. The data period includes the Great Recession, which was heavily associated with finance and thereby especially relevant to this study. The basic methodology in this paper is VAR-Sign Restrictions estimation. VAR is a well-known method to analyze inter-dependency among economic variables. By applying VAR-Sign Restrictions, we analyze how economic variables behave, positively or negatively, toward differently defined shocks. Imposing signs on the direction of economic variable responses to shocks is based on economic prior beliefs, using Bayesian estimation. Our results provide deeper insights into the relative merits of the two types of monetary aggregates as indicators.
    Keywords: Credit-Card-Augmented Divisia Monetary Aggregate, VAR, Sign Restrictions, Bayesian Estimation, Mixed-Frequency VAR, aggregation theory
    JEL: E42 E51 E52 E58
    Date: 2023–01
  45. By: Jan Ditzen (Free University of Bozen-Bolzano, Italy); Yiannis Karavias (Department of Economics, University of Birmingham, UK); Joakim Westerlund (Department of Economics, Lund University, Sweden and Deakin University, Melbourne, Australia)
    Abstract: This paper develops a new toolbox for multiple structural break detection in panel data models with interactive effects. The toolbox includes tests for the presence of structural breaks, a break date estimator, and a break date confidence interval. The new toolbox is applied to a large panel of US banks for a period characterized by massive quantitative easing programs aimed at lessening the impact of the global financial crisis and the COVID–19 pandemic. The question we ask is: Have these programs been successful in spurring bank lending in the US economy? The short answer turns out to be: “No”.
    Keywords: Panel Data, Structural Breaks, Cross-Section Dependence, Bank Lending, Quantitative Easing.
    JEL: C13 C33 E52 E58 G21
    Date: 2023–02
  46. By: Joshua Aizenman; Sy-Hoa Ho; Luu Duc Toan Huynh; Jamel Saadaoui; Gazi Salah Uddin
    Abstract: The global financial crisis has brought increased attention to the consequences of international reserves holdings. In an era of high financial integration, we investigate the relationship between the real exchange rate and international reserves using nonlinear regressions and panel threshold regressions over 110 countries from 2001 to 2020. We find the buffer effect of international reserves is more pronounced in Europe and Central Asia above a threshold of 17% of international reserves over GDP. Our study shows the level of financial-institution development plays an essential role in explaining the buffer effect of international reserves. Countries with a low development of their financial institutions may manage the international reserves as a shield to deal with the negative consequences of terms-of-trade shocks on the real exchange rate. We also find the buffer effect is stronger in countries with intermediate levels of financial openness.
    JEL: F30 F40 F44
    Date: 2023–01
  47. By: Bardoscia, Marco (Bank of England); Caccioli, Fabio (University College London, Systemic Risk Centre, London Mathematical Laboratory); Gao, Haotian (University College London)
    Abstract: We explore the impact of central clearing on the demand for collateral arising from variation margin calls in the derivatives market. We find that the aggregate demand for collateral is not necessarily minimal when all contracts are centrally cleared. Hence, at least in this respect, increasing the scope of central clearing is not always beneficial. Previous work finds instead that the demand for collateral is minimal when all contracts are centrally cleared, but rely on the crucial assumption that all institutions have centrally cleared and bilateral contracts with exactly the same underlying counterparties. In this special case we prove a stronger result: that the aggregate demand for collateral is (weakly) decreasing with the fraction of centrally cleared notional. We also prove that, in this case, the aggregate demand for collateral starts decreasing only when the fraction of centrally cleared notional is larger than a critical value, suggesting that the benefits of central clearing kick-in only when a sufficiently large portion of the market has moved to central clearing.
    Keywords: Financial network; systemic risk; derivatives; central counterparties; contagion
    JEL: G20 G28
    Date: 2022–11–11
  48. By: Fix, Blair
    Abstract: As much of the world grapples with post-Covid price gouging, it seems like a good time to revisit our understanding of inflation. In this post, I’m going to test Jonathan Nitzan and Shimshon Bichler’s ‘stagflation thesis’. The idea is that ‘stagflation’ — economic stagnation combined with high inflation — is not some exogenous ‘market shock’. According to Nitzan and Bichler, stagflation is a business strategy — one of two main routes to profit. The first route to profit is for businesses to hold prices steady while they try to sell more stuff. The second route is to jack up prices. Since this latter option requires restricting the flow of resources (stuff that flows freely cannot be dear), Nitzan and Bichler reason that when inflation rears its head, it ought to come with economic stagnation. In other words, stagflation is the norm. If this stagflation thesis is correct, then inflation ought to correlate negatively with economic growth. Looking at the United States, Nitzan and Bichler find evidence that it does. Here, I broaden their stagflation research by looking at all countries in the World Bank’s global development database. I find that both within and across countries, economic growth (measured in terms of energy use) tends to decline as inflation increases. So Nitzan and Bichler appear to be onto something. Over the last half century, stagflation is the general rule.
    Keywords: breadth, depth, energy, inflation, stagflation
    JEL: P16 Q4 N1
    Date: 2023

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