The Swiss consumer sentiment index is now published at a monthly frequency. Great to see that Marc Burri (alumnus of the Master program in International and Monetary Economics) and Daniel Kaufmann (last November, he delivered an interesting presentation on Swiss inflation at our public lecture series) contributed to the new methodology for the Swiss State Secretariat for Economic Affairs.
By the way, Swiss consumer sentiment recovered in January. Good news for the Swiss economy, although consumer sentiment indices seem to be somewhat less reliable at the moment also for the United States or the euro area. In general, consumer sentiment is very low.
As to low consumer sentiment in the United States, there is now an interesting new working paper that provide a convincing explanation: High borrowing costs!
“We propose that borrowing costs, which have grown at rates they had not reached in decades, do much to explain this gap. The cost of money is not currently included in traditional price indexes, indicating a disconnect between the measures favored by economists and the effective costs borne by consumers. We show that the lows in US consumer sentiment that cannot be explained by unemployment and official inflation are strongly correlated with borrowing costs and consumer credit supply.”
The working paper by Marijn Bolhuis, Judd Cramer, Karl Oskar Schulz, and Larry Summers can be downloaded here:
https://www.nber.org/papers/w32163
Another interesting fact about consumer confidence: In the United States, Republicans assess the economic situation significantly worse than Democrats and Independents. It is worth keeping an eye on this difference during this important election year.
The inflation attention threshold: Oliver Pfäuti (University of Texas at Austin and alumnus of the Master program in International and Monetary Economics) presented his paper “The Inflation Attention Threshold and Inflation Surges” at the Virtual Israel Macro Meeting (VIMM) at the Bank of Israel:
Here is his working paper:
What economists have learnt from the post-pandemic business cycle: Nice summary in The Economist that mentions the work by Pierpaolo Benigno (Professor of Macroeconomics and the University of Bern and teacher in the Master program in International and Monetary Economics) with Gauti Eggertsson:
The Swiss debt brake: The macroeconomist and journalist Fabio Canetg (MIME alumnus) explains and discusses the pros and cons of the Swiss debt brake in his podcast “Geldcast” (in German):
https://www.swissinfo.ch/ger/geldcast
Monetary policy in the euro area: Sarah Lein (Professor of Macroeconomics and the University of Basel and teacher in the Master program in International and Monetary Economics) participated at a meeting of German-speaking economist with Isabel Schnabel (Member of the Executive Board of the European Central Bank ECB)
Models for the international economy: Very interesting recent paper by by Gita Gopinath (First Deputy Managing Director of the IMF) and Suman Basu. Useful to incorporate contemporary macroeconomic policy issues into teaching!
“An Integrated Policy Framework (IPF) Diagram for International Economics”,
„The Mundell-Fleming IS-LM approach has guided generations of economists over the past 60 years. But countries have experienced new problems, the international finance literature has advanced, and the composition of the global economy has changed, so the scene is set for an updated approach. We propose an Integrated Policy Framework (IPF) diagram to analyze the use of multiple policy tools as a function of shocks and country characteristics.“
Central bank independence: Great news. The database on central bank independence by Davide Romelli is now updated with annual data for the 1923-2023 period!
https://dromelli.github.io/cbidata/index.html
There is also a recent working paper that proposes a new measure of central bank independence: „A New Measure of Central Bank Independence“, by Tobias Adrian Ashraf Khan Lev Menand from the International Monetary Fund
„This paper constructs a new index for measuring de jure central bank independence, the first entirely new index in three decades.“
„It improves upon existing indices including the Cukierman, Webb, and Neyapti (CWN) index, which has been the de facto standard for measuring central bank independence since 1992, as well as recent extensions by Garriga (2016) and Romelli (2022). For example, it includes areas absent from the CWN index, such as board composition, financial independence, and budgetary independence.“
Strong U.S. economy: Interesting remarks by Lael Brainard (National Economic Advisor for the U.S. government) at the 40th Annual NABE Economic Policy Conference: “Today’s Strong Recovery Is Laying Solid Foundations for the Future”
Some highlights:
“The U.S. economy is healthier today than was forecast just one year ago, stronger than the same stage of previous recoveries, and better on growth and inflation than our peers.”
“There’s a small-business boom taking root across America.”
“Second, the strong labor market recovery has drawn more people into the labor force and led to a substantial reallocation of jobs and workers.”
“Productivity growth measured as output per worker has outpaced all other G7 economies in this cycle so far.”
Economic weakness in Europe: While the United States has experienced a strong recovery from the pandemic, European economies are going through difficult times:
Isabel Schnabel (member of the Executive Board of the ECB) delivered an important speech analyzing the weak productivity performance in Europe:
Some highlights:
“At the turn of the millennium, Europe was operating at the global technological frontier, but today many euro area firms are laggards.”
“I will argue that our most potent weapon for enabling European firms to catch up to the technological frontier is to eliminate the remaining barriers to the free movement of goods, services and capital in the European Union.”
“Over the past three decades, a striking gap in the real IT-related capital stock has emerged between the euro area and the United States.”
“… the lack of external capital often makes it difficult for firms to scale up. In the euro area, venture capital investments are much lower than in the United States, so that many innovative companies hit funding constraints once they have entered the growth phase.”
“My diagnosis of the problem suggests that aggregate productivity growth depends both on how technologies are used and advanced at the firm level – the management hypothesis – and on how resources are allocated across firms – in other words the broad business environment.”
“I see three mutually reinforcing factors as critical for reducing resource misallocation and for promoting and easing the diffusion of digital technologies in the euro area.”
First, we need a regulatory framework that more strongly embraces and encourages competition.
Second, we need to foster integration in the euro area.
Third, we need to raise public investment, both at national and European levels, in order to deal with pressing structural challenges: the green transition, territorial security, digitalisation and a growing shortage of skilled workers.
Full speech:
https://www.ecb.europa.eu/press/key/date/2024/html/ecb.sp240216~df6f8d9c31.en.html
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