THE ECONOMY AND POLICY TRADE-OFFS

Good evening. It is a pleasure and an honour to be here at NIESR to give the annual Dow lecture. We are very lucky in the UK to have high-quality independent institutions such as NIESR focusing on the policy landscape, and in my time on the MPC I have always valued their commentary and research.

The Pandemic Waves' Impact on the Crude Oil Price and the Rise of Consumer Price Index: Case Study for Six European Countries

This study examines the response of the Consumer Price Index (CPI) in local currency to the COVID-19 pandemic using monthly data (March 2020–February 2022), comparatively for six European countries. We have introduced a model of multivariate adaptive regression that considers the quasi-periodic effects of pandemic waves in combination with the global effect of the economic shock to model the variation in the price of crude oil at international levels and to compare the induced effect of the pandemic restriction as well and the oil price variation on each country's CPI. The model was tested for the case of six emergent countries and developed European countries. The findings show that: (i) pandemic restrictions are driving a sharp rise in the CPI, and consequently inflation, in most European countries except Greece and Spain, and (ii) the emergent economies are more affected by the oil price and pandemic restriction than the developed ones.

Inflation Spillovers among Advanced and Emerging Economies: Evidence from the G20 Group

The influence of recent global shocks such as the COVID-19 pandemic and the Russian–Ukrainian war on the variability of major macroeconomic trends not only shows synchronized behavior across economies but also induces similar policy responses to counter these shocks. The purpose of this article is to explore the transmission of inflation among the G20 economies and evaluate its contribution to domestic inflation. To this end, we use the Diebold and Yilmaz spillover approach. The results that emerge from unconditional analysis reveal stark dissimilarities in inflation spillover patterns between advanced and emerging economies. Advanced economies are subject to higher spillover rates and thereby more exposed to global shocks compared to their emerging counterparts. Inflation in emerging countries is mainly derived from idiosyncratic shocks, while global shocks have only a modest influence on domestic inflation. In addition, bilateral spillovers among the G20 members show that the average pairwise directional spillovers between emerging economies are lower compared to advanced economies. The results pertaining to the spillover dynamics, on the other hand, show that total inflation spillover has a clear upward trend, indicating that the overall interconnectedness between G20 countries is increasing over time. Moreover, the estimates of spillover dynamics show a growing influence of received inflation spillovers from external shocks in both advanced and emerging economies. Policymakers in advanced economies are expected to respond to global shocks to mitigate the influence of spillovers, which is essential for economies that display high spillovers and turn out to be net receivers of shocks. However, public agencies in emerging economies should concentrate more on internal shocks to control inflation while not ignoring global shocks.

Impact of Inflation in Different States of Unemployment: Evidence with the Phillips Curve in South Africa from 2008 to 2022

This paper investigates the impact of inflation in different states of unemployment: evidence with the Phillips curve in South Africa. The contribution of this paper is to examine the impact of inflation on different states of unemployment in South Africa. The Paper employs Markov-switching dynamic regression and data from 2008 to 2022. It was found that there are 2 states of unemployment mean rates of 25.55% and 33.59%, expected to run for 67 and 7 quarters, respectively. There is a 98.51% and 86.99% chance of a move and then returning to the same state, respectively. In states 1 and 2, a 1% increase in inflation results in a 2.61% increase and a 0.06% decrease in unemployment, respectively. There are times when the Phillips curve rationale is not holding. The government needs to increase the channels of employment opportunities. There is a need to re-look at the trade-offs between inflation and unemployment in the economy.

MACROECONOMIC IMPACTS OF THE COVID-19 PANDEMIC IN THE CZECH REPUBLIC IN THE PERIOD OF 2020-2021

This article provides a comprehensive summary of selected macroeconomic impacts of the COVID-19 pandemic in the Czech Republic, including an assessment of certain implemented fiscal and monetary policies, using data from 2019 (to compare the development of the economic situation during the COVID-19 pandemic with the period before the onset of the pandemic), 2020 and 2021 on a monthly or quarterly basis. Particular attention is paid to monetary policy effects, which, unlike fiscal policy, the Mundell-Fleming model considers effective in a small open economy with a freely floating exchange rate. The article also investigates the volume of fiscal measures taken to mitigate COVID-19 pandemic effects, the restrictive measures introduced to Czech households and firms as well as labour market developments during the period of 2019-2021, including quantification of the aggregate labour productivity index. The conclusions of the article are that, during the COVID-19 pandemic, macroeconomic indicators in the Czech Republic acted in accordance with the established partial hypotheses of the Mundell-Fleming model and in accordance with the hypothesis of the modified Phillips curve. Possible causes of the significant increase in inflation since September 2021 include 2020 nominal public and private sector salary growth, which showed faster growth than aggregate labour productivity, and the highly expansionary fiscal policy that characterized the 2021 pre-election period.

THE EFFECTIVENESS OF GOVERNMENT MEASURES IN THE FIRST WAVE OF COVID-19 PANDEMIC

The aim of the article is to use empirical analysis to confirm the applicability of NAIRU and NARRU concepts to evaluate the adequacy of measures against Covid-19. While higher NAIRU than NARRU throughout the coronavirus pandemic period confirmed the achievement of an epidemic-economic balance in the labor market at the cost of spreading the epidemic, a lower positive unemployment gap in the NAIRU concept indicated a milder recession than the epidemic in society would require. The Czech government should have either introduced a stricter lockdown or should have provided enough respirators, tests, and vaccines. The application of the NAIRU concept also confirms its suitability for use in economic and political practice in an unstable period.

Predicting Inflation—A Holistic Approach

The quantity equation is a well-established, theoretic, long-run concept that has been criticized for a variety of reasons, i.e., that no precise statements about causality or dynamics between money growth and inflation can be inferred from its components. These shortcomings can be tackled by estimating inflation based upon a holistic approach and the performance of a ceteris paribus analysis for various levels of quantity and velocity of money, as well as GDP. By testing the validity of the quantity equation, it is possible to evaluate possible effects of elevated budget deficits, unprecedented expansions of the monetary base caused by global lockdowns, and a crash in global productivity, on inflation. The main findings of this paper suggest that the level of productivity is the main driver of inflation. The quantity and velocity of money only play a subordinate role in the determination of the inflation level. If inflation is holistically seen as a function of the quantity and velocity of money, as well as general economic productivity, the level of inflation can be very well explained by comparing the supply side with general economic productivity.

On Returning Inflation to Target

To gauge the breadth of current inflation and prospects for inflation returning to target, we consider disaggregated measures of CPI infl ation to evaluate trends and then consider diff erent scenarios for the realisation for wages and prices.

Why Did (Almost) No One See the Inflation Coming?

To understand the possible trajectory of inflation in 2022 and beyond, it is helpful to understand why the United States and Europe had so much inflation in 2021.

Slack and prices during Covid-19: Accounting for labor market participation.

Strong labor force participation cyclicality during the Covid-19 pandemic has put further into question the capacity of standard Phillips Curve (PC) models to fully capture labor market cyclical conditions. In this paper, we jointly estimate natural unemployment and participation rates (i.e. compatible with constant inflation) through an augmented PC informed by structural labor market flows across employment, unemployment and inactivity. Focusing on Italy we find that, during the pandemic: (i) natural unemployment has remained unchanged, while natural participation has declined slightly, mostly due to a rise in retirement flows driven by a temporary reduction in pension eligibility rules; (ii) virtually all slack was accounted for by the participation margin, which added significant downward pressures to inflation dynamics.

The pandemic and economic policy: monetary policy under discussion

This paper explores the credibility of monetary policy in Colombia and its evolution after the adoption of the inflation targeting system. To do so, a non-linear Phillips curve is estimated based on unemployment for an open economy, which incorporates the direct effect of past inflation rate on price formation and a prospective component. It shows a deeper trade-off between inflation and unemployment and lower inflationary persistence. Consequently, the country could emphasize the greater responsibility of the central bank in economic growth and employment. (English) [ FROM AUTHOR] Este artículo explora la credibilidad de la política monetaria en Colombia y su evolución después de adoptar el sistema de inflación objetivo. A partir de la estimación de relaciones lineales y no lineales de la curva de Phillips con base en el mercado laboral de una economía abierta y la incorporación de los efectos de la inflación pasada y el componente prospectivo de las expectativas de los analistas, se obtiene una menor persistencia y un trade-off entre inflación y desempleo más estrecho. En consecuencia, el país podría dar mayor responsabilidad al banco central en el crecimiento económico y el empleo. (Spanish) [ FROM AUTHOR] Este artigo explora a credibilidade da política monetária na Colômbia e sua evolução após a adoção do sistema de metas para a inflação. A partir da estimação das relações lineares e não lineares da curva de Phillips com base no mercado de trabalho de uma economia aberta e da incorporação dos efeitos da inflação passada e do componente prospectivo das expectativas dos analistas, menor persistência e trade-off mais apertado entre a inflação e o desemprego. Conseqüentemente, o país poderia atribuir maior responsabilidade ao banco central pelo crescimento econômico e pelo emprego. (Portuguese) [ FROM AUTHOR] Copyright of Revista de Economía Institucional is the property of Universidad Externado de Colombia and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full . (Copyright applies to all s.)

The political economy of inflation: European Journal of Economics and Economic Policies = Europäische Zeitschrift für Ökonomie und Wirtschaftspolitik

For the last 40 years, macroeconomics has been dominated by Milton Friedman’s view that inflation occurs when the supply of money rises more quickly than economic output – ‘too much money chasing too few goods’, as the saying goes. If inflation is always due to an imbalance of money supply and output, central banks alone determine the path of inflation, and fiscal policy merely has a redistributive function. This paper draws on historical and empirical evidence as well as recent theoretical literature to show that this view is mistaken. Monetary policy has redistributive effects, and fiscal policy affects the money supply. It is therefore impossible to separate them in practice. Both fiscal and monetary policy have inflationary consequences, and because their distributional effects are different, monetary policy cannot fully offset fiscal decisions. Fiscal and monetary policy are influenced by political decisions and are themselves political in nature. Since inflation reflects spending and saving patterns which are affected by political choices, it is fundamentally a political phenomenon.