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1657 publications found
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Policy Notes No.4
05 August 2022
Social State and Competitiveness
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Research Project Report
30 June 2022
Assessing the Impact of Childcare Expansion in Mexico
AbstractThere is broad consensus in both research and policy circles that one of the key reasons for a lack of progress in reducing gender gaps in employment and wages is the persistent gender imbalance in unpaid work, three-quarters of which is performed by women. Universal access to quality care services enables the reduction of this unpaid care work through its redistribution from the domestic sphere to the public sphere, with empirical studies from different regions and countries demonstrating that access to services (in particular, childcare services) substantially increases female labor force participation and labor market attachment. Furthermore, a series of recent empirical studies show that access to care also creates new demand for female employment: increasing public spending on care is found to generate two-to-three times the number of new jobs per dollar than spending on sectors such as construction.
Download Research Project Report, June 2022 PDF (1.25 MB)
This research project report focuses on Mexico and builds on previous studies for Turkey, Ghana, and Tanzania by constructing a combined time-use and income-employment dataset for Mexico to evaluate the net effects a proposed childcare expansion could have on earnings and work hours and their concomitant impact on time and income poverty by gender, with results indicating that the employment creation achieved through increased social care spending reduces gender employment gaps while also helping to alleviate the twin deprivations of time and income poverty. -
Working Paper No.1008
24 May 2022
A GARCH Approach to Modeling Chilean Long-Term Swap Yields
AbstractThis paper econometrically models the dynamics of the Chilean interbank swap yields based on macroeconomic factors. It examines whether the month-over-month change in the short-term interest rate has a decisive influence on the long-term swap yield after controlling for other factors, such as the change in inflation, change in the growth of industrial production, change in the log of the equity price index, and change in the log of the exchange rate. It applies the generalized autoregressive conditional heteroskedasticity (GARCH) approach to model the dynamics of the long-term swap yield. The change in the short-term interest rate has an economically meaningful and statistically significant effect on the change of the interbank swap yield. This means that the Banco Central de Chile’s (BCCH) monetary policy exerts an important influence on interbank swap yields in Chile.
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Working Paper No.1007
12 May 2022
School Performance and Child Labor
AbstractThe current study aims to investigate the impact of academic achievement on child labor. The study utilizes survey data collected from Palestinian children in West Bank schools who are in the primary grades (5th–9th). The results show that increasing a child’s academic achievement is significantly associated with decreasing the probability that a child works for money in the following period. Our findings varied among children according to their gender, age, and parental academic background. Our analyses are subject to different specifications, including two-stage least squares (2SLS) to account for potential endogeneity. The results provide robust evidence about the linkage between school performance and child labor in the West Bank. Further, the study proposes an assessment of the child’s mental health problems by the Strengths and Difficulties Questionnaire (SDQ) as a potential mechanism through which the child’s achievement at school affects child labor.
Download Working Paper No. 1007 PDF (524.22 KB) -
Policy Notes No.3
12 May 2022
Chile: The Road to Joy Is Paved with Obstacles
AbstractIn the second round of the Chilean presidential elections, the coalition led by Gabriel Boric secured a victory under the premise of delivering long-awaited reforms to a financially volatile, structurally fragile, and deeply unequal economic structure. In this policy note, Giuliano Toshiro Yajima sheds light on these three aspects of the Chilean economy, showing that its external and internal fragility feeds back on the excessive specialization and heterogeneity of the productive sectors, which in turn influence income and wealth distribution.
Download Policy Note 2022/3 PDF (722.12 KB) -
Working Paper No.1006
29 April 2022
Why the Feldstein-Horioka “Puzzle” Remains Unsolved
AbstractThis paper argues that the 40-year-old Feldstein-Horioka “puzzle” (i.e., that in a regression of the domestic investment rate on the domestic saving rate, the estimated coefficient is significantly larger than what would be expected in a world characterized by high capital mobility) should have never been labeled as such. First, we show that the investment and saving series typically used in empirical exercises to test the Feldstein-Horioka thesis are not appropriate for testing capital mobility. Second, and complementary to the first point, we show that the Feldstein-Horioka regression is not a model in the econometric sense, i.e., an equation with a proper error term (a random variable). The reason is that by adding the capital account to their regression, one gets the accounting identity that relates the capital account, domestic investment, and domestic saving. This implies that the estimate of the coefficient of the saving rate in the Feldstein-Horioka regression can be thought of as a biased estimate of the same coefficient in the accounting identity, where it has a value of one. Since the omitted variable is known, we call it “pseudo bias.” Given that this (pseudo) bias is known to be negative and less than one in absolute terms, it should come as no surprise that the Feldstein-Horioka regression yields a coefficient between zero and one.
Download Working Paper No. 1006 PDF (798.71 KB) -
Policy Notes No.2
22 April 2022
A Race to the Bottom
AbstractMore than a decade after the 2009 crisis, the standards of living of the Greek population are still contracting and the prospects are gloomy. In this policy note, Vlassis Missos, Research Associate Nikolaos Rodousakis, and George Soklis deal with how to approach the measurement of income loss and poverty in Greece and argue for the use of household disposable income (HDI) in estimating adjustments, which offers a more accurate appreciation of the burden falling on the Greek population. They underline the significance of replacing a “southern-European model” of social protection with a passive safety net model—and the centrality to the latter model of embracing ideas of internal devaluation and fiscal consolidation—and suggest a better measure of poverty, for the case of Greece specifically and in general for developed economies in which front-loaded neoliberal policies are imposed. Finally, they comment on the sacrifice that would be required if fiscal discipline were to return in the aftermath of the COVID-19 pandemic lockdowns.
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Working Paper No.1005
15 April 2022
A Prototype Regional Stock-Flow Consistent Model
AbstractStarting from the seminal works of Wynne Godley (1999; Godley and Lavoie 2005, 2007a, 2007b), the literature adopting stock-flow consistent (SFC) models for two or more countries has been flourishing, showing that consistently taking into account real and financial markets of two open economies will generate different results with respect to more traditional open economy models. However, few contributions, if any, have modeled two regions in the same country, and our paper aims at filling this gap. When considering a regional context, most of the adjustment mechanisms at work in open economy models—such as exchange rate movements, or changes in interest on public debt—are simply not present, as they are controlled by "external” authorities. So, what are the adjustment mechanisms at work?
Download Working Paper No. 1005 PDF (709.70 KB)
To answer this question, we adapt the framework suggested in Godley and Lavoie (2007a) to consider two regions that share the same monetary, fiscal, and exchange rate policies. We loosely calibrate our model to Italian data, where the South (Mezzogiorno) has both a lower level of real income per capita and a lower growth rate than the North. We also introduce a fragmented labor market, as discouraged workers in the South will move North in hopes of finding commuting jobs.
Our model replicates some key features of the Italian economy and sheds light on the interactions between financial and real markets in regional economies with “current account” imbalances. -
Public Policy Brief No.157
12 April 2022
Is It Time for Rate Hikes?
AbstractRoughly two years into the economic recovery from the COVID-19 crisis, the topic of elevated inflation dominates the economic policy discourse in the United States. And the aggressive use of fiscal policy to support demand and incomes has commonly been singled out as the culprit. Equally as prevalent is the clamor for the Federal Reserve to raise interest rates to relieve inflationary pressures. According to Research Scholar Yeva Nersisyan and Senior Scholar L. Randall Wray, this narrative is flawed in a number of ways. The problem with the US economy is not one of excess of demand in their view, and the Federal Reserve will not be able to engineer a “soft landing” in the way many seem to be expecting. The authors also deliver a warning: excessive tightening, combined with headwinds in 2022, could lead to stagflation. Moreover, while this recovery looks robust in comparison to the jobless recoveries and secular stagnation that have typified the last few decades, in Nersisyan and Wray’s estimation there are few signs of an overheating economy to be found in the macro data. In their view, this inflation is not centrally demand driven; rather dynamics at the micro-level are playing a much more central role in driving the price increases in question, while significant supply chain problems have curtailed productive capacity by disrupting the availability of critical inputs.
The authors suggest there is a better way to conduct policy—one oriented around targeted investments that would increase our real resource space. This will serve not only to address inflationary pressures, according to Nersisyan and Wray, but also the far more pressing climate emergency.
Download Public Policy Brief No. 157 PDF (638.88 KB) -
Working Paper No.1004
18 March 2022
Financial Barriers to Structural Change in Developing Economies
AbstractLiabilities denominated in foreign currency have established a permanent role on emerging market firms’ balance sheets, which implies that changes in both global liquidity conditions and in the value of the currency may have a long-lasting effect for them. In order to consider the financial conditions that may encourage (discourage) structural change in a small, open economy, we adopt the framework put forward by the “monetary theory of distribution” (MTD). More specifically, we follow the formulation adopted by Dvoskin and Feldman (2019), whereby the financial system is intended as a basic sector that promotes innovation (Schumpeter 1911). In accordance with this, financial conditions are binding only for the innovative entrepreneurs, whose methods of production are not dominant and hence they need to borrow from banks to kickstart their production. Through this device, our model offers an explanation of the technological lock-in experienced by a small, open economy that takes international prices as given.
Download Working Paper No. 1004 PDF (2.01 MB) -
Working Paper No.1003
04 March 2022
What’s Causing Accelerating Inflation
AbstractThis paper examines the recent increase of the measured inflation rate to assess the degree to which the acceleration is due to problems created (largely on the supply side) by the pandemic versus pressures created on the demand side by pandemic relief. Some have attributed the inflation to excess demand, most notably Larry Summers, who had warned that the pandemic relief spending was too great. As evidence, one could point to the quick recovery of GDP and to reportedly tight labor markets. Others have variously blamed supply chain disruptions, shortages of certain inputs, OPEC’s oil price increases, labor market disruptions because of COVID, and rising profit margins obtained through exercise of pricing power. We conclude that there is little evidence that excess demand is the problem, although we agree that in the absence of the relief checks, recovery would have been sufficiently slow to minimize inflation pressure. We closely examine the main contributors to rising overall prices and conclude that tighter monetary policy would not be an effective way to reduce price pressures. We also cast doubt on the expectations theory of inflation control. We present evidence that suggests there is currently little danger that higher inflation will become entrenched. If anything, rate hikes now will make it harder for the economy to adjust to current realities. The potential for lots of pain with little gain is great. The best course of action is to tackle problems on the supply side.
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Strategic Analysis
01 March 2022
Είναι η Ελλάδα στον δρόμο της οικονομικής ανάκαμψης;
AbstractΣε αυτή τη στρατηγική ανάλυση, ο Πρόεδρος του Ινστιτούτου Δημήτρης Β. Παπαδημητρίου, ο ερευνητής Gennaro Zezza και ο επιστημονικός συνεργάτης Νίκος Ροδουσάκης αναλύουν πώς η ελληνική οικονομία άρχισε να ανακάμπτει από το σοκ της πανδημίας COVID-19 και τις προοπτικές συνέχισης και διατήρησης της ανάκαμψής της. Ο βασικός παράγων είναι ο τουρισμός, ο οποίος αυξήθηκε σημαντικά το 2021, παρά την πανδημία, αλλά παρέμεινε πολύ πιό κάτω από το επίπεδο του 2019. Ωστόσο, αναμένεται να συνεχίσει την ανάκαμψή του και το τρέχον έτος. Επιπλέον, βασικό ρόλο θα διαδραματίσουν τα κεφάλαια της NGEU (Ταμείο Ανάκαμψης της ΕΕ) και η ικανότητα της ελληνικής κυβέρνησης να χρησιμοποιεί αυτά τα κεφάλαια με αποτελεσματικό και έγκαιρο τρόπο κατά την έναρξη και την ολοκλήρωση των ήδη εγκεκριμένων κεφαλαιουχικών έργων. Μια πιθανή απειλή συνδέεται με την πιθανότητα ο επίμονος πληθωρισμός να αυξήσει το κόστος δανεισμού, μειώνοντας τον δημοσιονομικό χώρο της κυβέρνησης. Ένα άλλο «γνωστό άγνωστο» -που δεν εξετάζεται σε αυτή την έκθεση- είναι οι γεωπολιτικές αναταράξεις που προέρχονται από τη σύγκρουση Ουκρανίας-Ρωσίας, προσθέτοντας ένα επιπλέον στρώμα αβεβαιότητας στις μεσοπρόθεσμες προοπτικές για την Ευρώπη και την Ελλάδα.
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Strategic Analysis
01 March 2022
Is Greece on the Road to Economic Recovery?
AbstractIn this strategic analysis, Institute President Dimitri B. Papadimitriou, Research Scholar Gennaro Zezza, and Research Associate Nikos Rodousakis analyze how the Greek economy started to recover from the shock of the COVID-19 pandemic and the prospects of continuing and sustaining its recovery. A key contribution is linked to tourism, which increased significantly in 2021, notwithstanding the pandemic, but was still very much below its 2019 level; it is expected, however, to continue its recovery in the current year. In addition, a key role will be played by NGEU funds and the Greek government’s capacity to use such funds in an effective and timely manner when starting and completing the already approved capital projects. A potential threat is linked to the possibility that persistent inflation will drive up the cost of borrowing, reducing the government’s fiscal space. Another “known unknown” —not considered in this report—is the geopolitical turbulence emanating from the Ukraine–Russian conflict, adding an additional layer of uncertainty to the medium-term prospects for Europe and Greece.
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Policy Notes No.1
25 February 2022
What Is Happening to the New Greek National Accounts Data?
AbstractIn 2020, the Hellenic Statistical Authority (ElStat) started a revision of the national accounts for Greece to bring them into line with the new European System of Accounts. Data from national accounts have gained more relevance as a crucial set of information for policy, especially in the eurozone, since many indicators—like the size of the public deficit relative to GDP—depend on them. It is therefore crucial that these data provide a realistic description of the actual state of the economy.
Download Policy Note 2022/1 PDF (1.17 MB)
Models that aim at understanding the medium-term trajectory of an economy usually need to abstract from short-term volatility due to the seasonal behavior of some variables, and it is therefore common practice to use seasonally adjusted data rather than the observed seasonal data. Research Scholar Gennaro Zezza, Institute President Dimitri Papadimitriou, and Research Associate Nikos Rodousakis recently noticed that the dynamics of relative prices, as measured by the ratios between the deflators of the different seasonally adjusted components of GDP, had an excess volatility, which made it more difficult to obtain meaningful econometric estimates of their determinants. They have therefore decided to investigate whether this excess volatility could be observed in the original seasonal data, and this note documents their results. -
Policy Notes No.1
25 February 2022
Τι συμβαίνει με τα νέα δεδομένα των ελληνικών Εθνικών Λογαριασμών;
AbstractTο 2020, η Ελληνική Στατιστική Αρχή (ΕΛΣΤΑΤ) ξεκίνησε την αναθεώρηση των εθνικών λογαριασμών για την Ελλάδα, προκειμένου να εναρμονιστούν με το νέο Ευρωπαϊκό Σύστημα Λογαριασμών. Τα δεδομένα από τους εθνικούς λογαριασμούς έχουν αποκτήσει μεγαλύτερη σημασία ως ένα κρίσιμο σύνολο πληροφοριών για την πολιτική, ειδικά στην ευρωζώνη, καθώς πολλοί δείκτες -όπως το μέγεθος του δημόσιου ελλείμματος σε σχέση με το ΑΕΠ- εξαρτώνται από αυτούς. Είναι επομένως σημαντικό τα στοιχεία αυτά να παρέχουν μια ρεαλιστική περιγραφή της πραγματικής κατάστασης της οικονομίας.Τα μοντέλα που στοχεύουν στην ανάλυση του μεσοπρόθεσμου ρυθμού μιας οικονομίας συνήθως πρέπει να προσαρμόζονται από τη βραχυπρόθεσμη αστάθεια της εποχιακής συμπεριφοράς ορισμένων μεταβλητών, και επομένως είναι κοινή πρακτική η χρήση εποχικά προσαρμοσμένων δεδομένων αντί των παρατηρούμενων αυτών. Ο ερευνητής Gennaro Zezza, ο Πρόεδρος του Ινστιτούτου Δημήτρης Παπαδημητρίου και ο Επιστημονικός Συνεργάτης Νίκος Ροδουσάκης παρατήρησαν πρόσφατα ότι η δυναμική των σχετικών τιμών, όπως μετριέται από τους λόγους μεταξύ των αποπληθωριστών των διαφορετικών εποχικά προσαρμοσμένων συνιστωσών του ΑΕΠ, είχε υπερβολική μεταβλητότητα, γεγονός που δυσκόλευσε περισσότερο στο να ληφθούν ουσιαστικές οικονομετρικές εκτιμήσεις των καθοριστικών παραγόντων τους. Ως εκ τούτου, αποφάσισαν να διερευνήσουν εάν αυτή η υπερβολική αστάθεια θα μπορούσε να παρατηρηθεί στα αρχικά εποχιακά δεδομένα και αυτό το σημείωμα τεκμηριώνει τα αποτελέσματά τους.
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One Pager No.69
21 February 2022
Time to Celebrate Modern Money Theory?
AbstractA recent article in the New York Times asks whether Modern Money Theory (MMT) can declare victory after its policies were (supposedly) implemented during the response to the COVID-19 pandemic. The article suggests yes, but for the high inflation it sparked. In the view of Yeva Nersisyan and Senior Scholar L. Randall Wray, the federal government’s response largely validated MMT’s claims regarding public debt and deficits and questions of sovereign government solvency—it did not, however, represent MMT policy.
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Working Paper No.1002
04 February 2022
COVID-19 and Fiscal-Monetary Policy Coordination
AbstractAgainst the backdrop of the COVID-19 pandemic, this paper analyzes the economic stimulus packages announced by the Indian national government and tries to identify some plausible fiscal and monetary policy coordination. The shrinking fiscal space due to revenue uncertainties has led to a theoretical plausibility of a reemergence of finite monetization of deficits in India. However, the empirical evidence confirms no direct monetization of the deficit.
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Working Paper No.1001
02 February 2022
Estimating a Time-Varying Distribution-Led Regime
AbstractThis paper estimates the distribution-led regime of the US economy for the period 1947–2019. We use a time varying parameter model, which allows for changes in the regime over time. To the best of our knowledge this is the first paper that has attempted to do this. This innovation is important, because there is no reason to expect that the regime of the US economy (or any economy for that matter) remains constant over time. On the contrary, there are significant reasons that point to changes in the regime. We find that the US economy became more profit-led in the first postwar decades until the 1970s and has become less profit-led since; it is slightly wage-led over the last fifteen years.
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Working Paper No.999
18 January 2022
Structural Change, Productive Development, and Capital Flows
AbstractThe outbreak of COVID-19 brought back to the forefront the crucial importance of structural change and productive development for economic resilience to economic shocks. Several recent contributions have already stressed the perverse relationship that may exist between productive backwardness and the intensity of the COVID-19 socioeconomic crisis. In this paper, we analyze the factors that may have hindered productive development for over four decades before the pandemic. We investigate the role of (non-FDI) net capital inflows as a potential source of premature deindustrialization. We consider a sample of 36 developed and developing countries from 1980 to 2017, with major emphasis on the case of emerging and developing economies (EDE) in the context of increasing financial integration. We show that periods of abundant capital inflows may have caused the significant contraction of manufacturing share to employment and GDP, as well as the decrease of the economic complexity index. We also show that phenomena of “perverse” structural change are significantly more relevant in EDE countries than advanced ones. Based on such evidence, we conclude with some policy suggestions highlighting capital controls and external macroprudential measures taming international capital mobility as useful tools for promoting long-run productive development on top of strengthening (short-term) financial and macroeconomic stability.
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Working Paper No.998
10 January 2022
Technology and Productivity
AbstractEconomic analysts have used trends in total factor productivity (TFP) to evaluate the effectiveness with which economies are utilizing advances in technology. However, this measure is problematic on several different dimensions. First, the idea that it is possible to separate out the relative contribution to economic output of labor, capital, and technology requires ignoring their complex interdependence in actual production. Second, since TFP growth has declined in recent decades in all of the developed market societies, there is good reason to believe that the decline is an artifact of the slower rates of economic growth that are linked to austerity policies. Third, reliance on TFP assumes that measures of gross domestic product are accurately capturing changes in economic output, even as the portion of the labor force producing tangible goods has declined substantially. Finally, there are other indicators that suggest that current rates of technological progress might be as strong or stronger than in earlier decades.
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Working Paper No.997
22 December 2021
Identity and Well-Being in the Skilled Crafts and Trades
AbstractWe analyze the extent to which occupational identity is conducive to worker well-being. Using a unique survey dataset of individuals working in the German skilled crafts and trades (2017–18, n=757), we use a novel occupational identity measure that captures identity more broadly than just referring to organizational identification and social group membership, but rather comprises personal and relational elements inherent in one’s work. The latter are linked to significant social interactions a worker has in their job and the former to specific work characteristics of the work conducted itself. We find that higher job satisfaction is related to a stronger sense of occupational identity in our sample. This relationship is quite sizable and robust across model specifications, whereas income is not associated with job satisfaction in most models. Occupational identity is positively associated with a number of work characteristics, viz. task significance, task and skill variety, as well as social support, and our analysis shows that identity mediates the influence of these characteristics with regard to job satisfaction.
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Working Paper No.996
13 December 2021
Seven Replies to the Critiques of Modern Money Theory
AbstractModern Money Theory (MMT) has generated considerable scrutiny and discussions over the past decade. While it has gained some acceptance in the financial sector and among some politicians, it has come under strong criticisms from all sides of the academic spectrum and from conservative political circles. MMT has been argued to be both fascist and communist, orthodox and heterodox, dangerous and benign, unworkable and obvious, and unrealistic and clearly nothing new. The contradictory aspects of the range of criticisms suggest that there is at best a superficial understanding of the MMT framework. MMT relies on a well-established theoretical framework and is not inherently about changing the economic system; it is about changing the policymaking praxis to implement a given public purpose. That public purpose can be small or large and can be conservative or progressive; it ought not to be narrowly determined but rather should be set as democratically as possible. While MMT proponents tend to favor a public purpose that deals with what they see as major drawbacks of capitalist economies (persistent nonfrictional unemployment, unfair inequalities, and financial instability), their policy proposals do not lead to a major shift of domestic resources to the public purpose. If a major increase in government spending is implemented, MMT provides some guidance on how to do that in the least disruptive manner by drawing on past economic experiences. The point is to implement the public purpose at a pace that recognizes the potential constraint that comes from domestic resource availability and potential inflationary pressures from bottlenecks, rising import prices, and exchange rate depreciation, among others. In most cases, economies have more flexibility than what is admitted. In all cases, when monetary sovereignty prevails, the fiscal position and the public debt are poor metrics for judging the viability of a public purpose and its pace of implementation.
As such, applying MMT to policymaking does not mean that a government ought to be encouraged to record fiscal deficits or that the relation between the central bank and the treasury ought to be radically changed to allow direct financing. The fiscal balance is not a proper policy goal because it leads to irrelevant or incorrect policymaking and because it is largely outside the control of policymakers. The financial praxis of monetarily sovereign governments already conforms to MMT. Central banks and treasuries routinely coordinate their financial operations. Some governments have allowed direct financing of the treasury by the central bank; others have not but have developed equivalent ways to coordinate their fiscal and monetary operations that work around existing political constraints. Such routine coordination ensures an elastic financing of government operations that at least deals with domestic resources and is not intrinsically inflationary.
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Public Policy Brief No.156
08 December 2021
Still Flying Blind after All These Years
AbstractInstitute President Dimitri B. Papadimitriou and Senior Scholar L. Randall Wray contend that the prevailing approach to monetary policy and inflation is influenced by a set of concepts that are a poor guide to action. In this policy brief, they examine two previous cases in which the Federal Reserve misread the data and raised rates too soon, as well as the evolution of the Fed’s thought and practice over the past three decades—a period in which the central bank has increasingly turned to unobservable indicators that are supposed to predict inflation. Noting that their criticisms have now been raised by the Fed’s own members and research staff, the authors highlight the ways in which we need to rethink our overall framework for monetary and fiscal policy. The Fed has far less control over inflation than is presumed, they argue, and, at worst, might have the whole inflation-fighting strategy backwards. Managing inflation, they conclude, should not be left entirely in the hands of central banks.
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Policy Notes No.4
10 November 2021
A Recovery for Whom?
AbstractThe COVID-19 pandemic has revealed multiple risks faced by economies whose production structures depend on the volatility of international conditions. In the case of Greece, this has manifested itself in the severe impact the pandemic has had on one of the linchpins of the Greek economy: the tourism sector. Vlassis Missos, Nikolaos Rodousakis, and George Soklis document the impact of the pandemic on tourism and the significance of tourism revenues for Greece’s 2021 GDP recovery. They argue that the distributional effect of the tourism sector plays a significant role in overall income inequality in Greece and develop a number of policy recommendations aiming to correct some of the problematic aspects of the country’s tourism sector.
Download Policy Note 2021/4 PDF (132.08 KB)