International and Monetary Economics Network

• Macro musings with David Beckworth: Claudio Borio on the Future of Central Bank Operating Systems: “there are issues, in terms of the risks that the central bank takes, the losses that the central bank takes, the possible losses that the central bank exposes itself to, and the political economy consequences of that.”

https://macromusings.libsyn.com/claudio-borio-on-the-future-of-central-bank-operating-systems

• ECB publishes new statistics on the distribution of household wealth. Great news for policymakers and researchers-

The Distributional Wealth Accounts “provide data on net wealth, total assets and liabilities and their components. Households are broken down into the top five deciles of net wealth and the bottom 50% as well as by employment and housing status. Through these data, it is possible to analyse the effects of, for example, growing housing wealth and the rising value of listed shares on the distribution of household wealth.”

https://www.ecb.europa.eu//press/pr/date/2024/html/ecb.pr240108~ae6f7ef287.en.html

• Esther Duflo, new President of the Paris School of Economics:

https://www.parisschoolofeconomics.eu/en/news/esther-duflo-new-president-of-the-paris-school-of-economics/

• “Essentiality of Money: A Historical Perspective” by Bruno Sultanum. Very interesting article:

“In this article, I explore the historical development of the concept of essentiality of money, as well as monetary theory more broadly. I begin by introducing the concept of money and its role in facilitating economic activity. I delve into the evolution of monetary theory, starting with the classical theory and the marginal revolution and moving to the division between microeconomics and macroeconomics. Then I discuss the microfoundation revolution in macroeconomics and the debate over the essentiality of money. Finally, I examine the New Keynesian School (which uses reduced-form tools to introduce money) and the New Monetarist School (which emphasizes explicit microfoundations and the essential functions of money).”

https://www.richmondfed.org/publications/research/economic_brief/2024/eb_24-01

• Webcasts of some highly interesting sessions at the ASSA 2024 meeting in San Antonio are available. In particular, IMEN liked the session “Understanding the Return of Inflation”

https://www.aeaweb.org/conference/webcasts/2024/

• “Why are Americans so displeased with the economy? Measuring whether economic news has become more negative”: by Ben Harris and Aaron Sojourner from Brookings:

“…the discrepancy between the macroeconomy and household sentiment has given rise to several competing theories to explain the apparent disconnect. Our simple econometric model adds to evidence that biased sources of information play a role, and suggests that economic news has become systemically more negative beginning in 2018, with the negative bias growing over the past three years.”

Why are Americans so displeased with the economy?

• What drives the exchange rate, by Oleg Itskhoki and Dmitry Mukhin. They find that “the observed exchange rate behavior is consistent with risk-sharing (financial) shocks that arise from shifts in demand of foreign investors for home-currency assets, or vice versa.”

https://www.nber.org/papers/w32008

• “Dissecting the OG Brady Plan” by Marijn Bolhuis and Neil Shenai from the IMF in the Financial Times: “We reckon the Brady Plan worked because participating countries actually used the breathing room provided by debt relief to undertake needed macroeconomic and structural reforms.”

https://www.ft.com/content/0d868ac4-63bb-4ac0-bc3a-0ca8f8297733

Link to their working paper:

https://www.imf.org/en/Publications/WP/Issues/2023/12/14/How-the-Brady-Plan-Delivered-on-Debt-Relief-Lessons-and-Implications-542389

• The Global Minimum Tax and the taxation of MNE profit. In this OECD working paper, the authors assess “the impact of the global minimum tax (GMT) on the taxation of multinational enterprises (MNEs), based on a comprehensive dataset capturing the global activities of large MNEs.”

The results are not surprising: “the GMT substantially reduces the incentives to shift profits. Second, the GMT is estimated to very substantially reduce low-taxed profit worldwide through lower profit shifting and top-up taxation. Third, the GMT is estimated to increase CIT revenues. Finally, the GMT is estimated to reduce tax rate differentials across jurisdictions with potential impacts on the allocation of investment and MNE activity.”

In particular, I find this finding noteworthy:

“Differences in taxation between jurisdictions are estimated to fall, which will likely increase the importance of non-tax factors in influencing investment decisions and improving the allocation of capital globally.”

Working paper by Felix Hugger, Ana Cinta González Cabral, Massimo Bucci, Maria Gesualdo, Pierce O’Reilly:

https://www.oecd.org/tax/the-global-minimum-tax-and-the-taxation-of-mne-profit-9a815d6b-en.htm

• In the United States, CPI inflation was 0.3% in December compared to November. Compared to the previous year, it was 3.4%. These figures are slightly higher than generally expected. Inflation is still on a downward trend, but the December figures are a minor warning sign: Do not celebrate too early.

https://www.bls.gov/news.release/cpi.nr0.htm

• “Argentina and Türkiye: a tale of two adjustments”, David Lubin, Senior Research Fellow at Chatham House:

“Success is far from assured in either country. But for a raft of reasons, it is Türkiye that has the best chance of improvement. That’s not because gradualism is inherently more reliable than shock therapy; but rather because Türkiye’s problems are shallower than Argentina’s, and because the domestic politics and the geopolitics around Türkiye’s stabilisation seem more promising.”

https://www.omfif.org/2024/01/argentina-and-turkiye-a-tale-of-two-adjustments