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Why did US inflation rise over 2021-22 and why has it retreated since then? Ball, Leigh, and Mishra (2022), writing near the inflation peak, explained the rise with a framework in which inflation depends on three factors: long-term expectations; the tightness of the labor market as measured by the vacancy-to-unemployment (V/U) ratio; and large changes in relative prices in particular industries such as energy and autos. This paper finds that the same framework explains the retreat in inflation since our earlier work.
How do sovereign debt restructurings reduce debt-to-GDP ratios? We explore this empirically using a comprehensive dataset covering 115 countries over 1950–2021. After addressing selection bias through an Augmented Inverse Probability Weighted estimator, we show that restructurings significantly reduce debt-to-GDP ratios over 1-5 years, with the effects working primarily through debt levels. The effect is larger when restructurings are combined with fiscal consolidation. We find heterogeneity depending on the creditor type, and the type and size of debt relief. In the short run, restructurings with higher creditor coordination, face value reductions, and larger debt reliefs, reduce debt-to-GDP ratios more effectively. (JEL F34, F41, H63)
This paper analyzes inflation dynamics in 21 advanced and emerging market economies since 2020. We decompose inflation into core inflation as measured by the weighted median inflation rate, and headline shocks––deviations of headline inflation from core. Headline shocks occurred largely on account of energy price changes, although food price changes and indicators of supply chain problems also played a role. We explain the evolution of core inflation with two factors: the strength of macroeconomic conditions—measured by the unemployment gap, the output gap, and the ratio of job vacancies to unemployment—and the pass-through into core inflation from past headline shocks. We conclude that the international rise and fall of inflation since 2020 largely reflected the direct and pass-through effects of headline shocks. Macroeconomic conditions generally played a secondary role. In the United States, estimated price pressures from strong macroeconomic conditions had been greater than in other economies but have eased.
U.S. inflation surged in 2021-22 and has since declined, driven largely by a sharp drop in goods inflation, though services inflation remains elevated. This paper zooms into services inflation, using proprietary microdata on wages to examine its relationship with service sector wage growth at the Metropolitan Statistical Area (MSA) level. We estimate the wage-price pass-through with a local projection instrumental variable model that exploits variation in labor market tightness across MSAs. Our findings reveal a positive and significant relationship between wages and price growth, with a lag. This suggests that the effects of tight labor markets are persistent and may influence the pace of progression toward the inflation target.
This paper examines the macroeconomic implications of harmonizing electoral cycles in India. We employ India’s own historical experience when national and state elections were held simultaneously. Using the variation between cases of synchronous and non-synchronous elections nationally and within states, our findings suggest comparatively high economic growth at both national and state-levels, following episodes of synchronized elections, compared to periods of non-synchronized election cycles. The findings are consistent with relatively higher post-election government expenditure, higher capital compared to revenue spending, and higher overall investment. Potential mechanisms for these findings could include direct channels such as lesser disruption in economic activity from less frequent elections, but possibly more importantly indirect channels operating through lower uncertainty. Overall, the results imply that the synchronicity of election cycles can have far reaching economic effects, beyond simply looking at administrative costs and logistics of conducting elections. The paper highlights the criticality of political economy and electoral cycles for emerging markets to transition into an advanced economy. The results could also be relevant for broader international debates on benefits from political unions, specifically, in the case of Europe.
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