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.
Since Tocqueville (1835), civil society has been recognized as a cornerstone of liberal democracy. But populists claim to be the only legitimate representatives of the people, leaving no space for civil society. Are populism and civil society enemies? To answer this question, we look at voters’ choices in Europe. We find that individuals belonging to associations are less likely by 1.6 to 2.8 percentage points to vote for populist parties, which is large considering that the average vote share for populist parties is between 12 and 22 percent. This results survives to a large number of robustness checks.
India introduced credit scoring technology in 2007. We study adoption by the two main types of banks operating there, new private banks (NPBs) and state-owned public sector banks (PSBs). NPBs start checking the credit scores of most borrowers before lending, soon after the technology is introduced. PSBs do so equally quickly for new borrowers but very slowly for prior clients, although lending without checking scores is reliably associated with more delinquencies. We show that an important factor explaining the difference in adoption is the stickiness of past bank structures and associated managerial practices. Past practices hold back better practices today.
We analyze a unique episode in the history of monetary economics, the 2016 Indian ``demonetization.'' This policy made 86% of cash in circulation illegal tender overnight, with new notes gradually introduced over the next several months. We present a model of demonetization where agents hold cash both to satisfy a cash-in-advance constraint and for tax evasion purposes. We test the predictions of the model in the cross-section of Indian districts using several novel data sets including: the geographic distribution of demonetized and new notes for causal inference; nightlight activity and employment surveys to measure economic activity including in the informal sector; debit/credit cards and e-wallet transactions data; and banking data on deposit and credit growth. Districts experiencing more severe demonetization had relative reductions in economic activity, faster adoption of alternative payment technologies, and lower bank credit growth. The cross-sectional responses cumulate to a contraction in aggregate employment and nightlights-based output due to the the cash shortage of at least 2 p.p. and of bank credit of 2 p.p. in 2016Q4 relative to their counterfactual paths, effects which dissipate over the next few months. Our analysis rejects money non-neutrality using a large scale natural experiment, something that is yet rare in the vast literature on the effects of monetary policy.
Do employment and educational characteristics of central bank governors affect financial regulation? To answer this question, we construct a new and unique dataset based on curriculum vitae of all central bank governors around the world in 1970-2011, and merge this with data on financial regulation and other variables. The proportion of governors that had past experience in finance increases from 10 percent in 1980 to 30 percent in 2010. Past experience in finance matters, and the effect is large: Over the average duration in office (5.6 years), a central bank governor with financial sector experience deregulates three times more than a governor without financial sector experience. Experience in finance after tenure as governor is not important. Similar results hold for past experience at the International Monetary Fund; in contrast, past experience at the Bank of International Settlements and the United Nations have the opposite effect, slowing the pace of deregulation. Our findings are consistent with the view that past work experiences of central bankers shape their beliefs and preferences, which, in turn, are consequential for policy outcomes.
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