Menu
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.
In response to COVID-19, countries frequently adopted multiple types of policies to address the economic and financial effects of the pandemic. This paper analyzes the impact on bank lending of combinations or packages of policies (fiscal, monetary, and prudential) adopted across a broad sample of countries. Using a comprehensive policy announcement level dataset together with bank level information, we find that lending grew faster at banks in countries which announced large packages combining fiscal, monetary, and prudential measures (“All-out” packages), especially when uncertainty was high. Both the scope and size of policy packages were important: packages combining all three types of policies, but where only some were large, were relatively less effective in enhancing credit. The impact was stronger among more constrained banks with low equity levels. “All-out” packages also increased liquidity for bank dependent firms but did not disproportionately benefit unviable firms.
The share of e-commerce in total credit-card spending boomed during Covid in Spain. In particular, women, youth, and urban consumers used e-commerce proportionally more during the pandemic, especially for services. Using a unique proprietary dataset on credit card transactions, we test conjectures about consumers’ behavior (based on fear, hoarding, or learning) during Covid. Overall, e-commerce share reverted to its pre-Covid trend as the pandemic waned. However, some consumers with lower pre-Covid e-commerce usage tend to permanently use more e-commerce, supporting the conjecture of “learning by locking” for these individuals.
Large price changes in industries affected by the COVID-19 pandemic caused erratic fluctuations in the U.S. headline inflation rate. This paper compares alternative approaches to filtering out the transitory effects of these industry price changes and measuring the underlying or core level of inflation over 2020- 2021, the height of the pandemic. The Federal Reserve’s preferred measure of core, the inflation rate excluding food and energy prices, performed poorly over that period: it was almost as volatile as headline inflation. Measures of core that exclude a fixed set of additional industries, such as the Atlanta Fed’s sticky-price inflation rate, were less volatile, but the least volatile were measures that filter out large price changes in any industry, such as the Cleveland Fed’s median inflation rate and the Dallas Fed’s trimmed mean inflation rate. These core measures followed smooth paths, drifting down when the economy was weak in 2020 and then rising as the economy rebounded.
© Copyright 2024 Prachi Mishra. All Rights Reserved.