US policy measures have created significant turbulence. There is growing concern about both the US and global economies. Fears of a recession have intensified. For instance, in a recent survey by our network, more than half of the participants expected a recession in the United States. Uncertainty is high. The GDP nowcast from the Federal Reserve Bank of Atlanta currently stands at -0.5 percent for the first quarter of 2025 (annualized), while the Federal Reserve Bank of New York’s estimate remains at 2.9 percent. Meanwhile, our own nowcast by the International and Monetary Economics Network is 0.2 percent. Concern among US households is also growing. Consumer sentiment indices dropped sharply in the early months of 2025. Inflation expectations have risen, and households increasingly anticipate higher unemployment. In addition, personal consumption expenditures contracted in January and almost stagnated in February.
„The Four R-stars: From Interest Rates to Inflation and Back“ by Ricardo Reis“R-star is a useful benchmark for the real interest rate. Sometimes, it refers to the steady-state equilibrium rate where savings equal investment (m), other times to the long-run value for the yield on safe government bonds (y), other times to the counterfactual return earned by inputs when the level of output is at potential (ρ), and some other times to the neutral monetary policy rate at which inflation is at its target value (i).“
———————————————————-
„Attention to the Macroeconomy„
by Sebastian Link, Andreas Peichl, Oliver Pfäuti, Christopher Roth, and Johannes Wohlfart
„…attention to the macroeconomy responds strongly to shocks; more attentive respondents adjust their inflation expectations more frequently during the shock, are more confident in their beliefs, and hold smaller misperceptions about realized inflation. However, at odds with goal-optimality of attention, more attentive agents’ expectations about future inflation deviate more strongly from expert benchmarks.“
———————————————————-
Financial literacy and monetary policy transmission
„Speech by Isabel Schnabel (ECB) at the 2025 Mais Lecture at Bayes Business School“greater financial literacy tends to strengthen the transmission of central bank policies to the real economy. Therefore, it can make monetary policy more effective“
———————————————————-
„Macroprudential and monetary policy tightening: more than a double whammy?„
by Markus Behn, Stijn Claessens, Leonardo Gambacorta, and Alessio Reghezza
„We investigate the interaction between monetary and macroprudential policy in affecting banks’ lending and risk-taking behaviour using rich euro area credit registry data and exploiting a unique setting that combined a sharp and unexpected monetary tightening with a wave of macroprudential tightening initiated before.“
„Our analysis shows that when calibrating monetary and macroprudential policies, it is crucial to account for the effects of policy interactions and the role of bank heterogeneity.“
———————————————————-
The literature on geoeconomic fragmentation is growing fast. It is important to think carefully about some methodological issues!
„Fragmentation? Revisiting the Ideal Point Distance measure of geopolitical distance„
by Florencia S. Airaudo, François de Soyres, Keith Richards, and Ana Maria Santacreu.
„This note shows that methodological choices, such as time span and vote selection in IPD estimation, can affect conclusions about geoeconomic fragmentation.““Our analysis reveals a contrast between trade and financial flows: trade relationships display consistent fragmentation along geopolitical lines, suggesting that economic ties actively realign with political blocs, while portfolio holdings show more resilience to geopolitical pressures, maintaining connections even across political divides.“
———————————————————-
„Monetary policy and the secular decline in long-term interest rates: A global perspective„
by Boris Hofmann, Zehao Li, and Steve Pak Yeung Wu
„We find that on average almost 70% of the secular decline in long-term interest rates across advanced economies between the early 1990s and 2023 occurred in the three days surrounding Federal Open Market Committee (FOMC) windows.“
———————————————————-
„Macroeconomics and Climate Change„
by Adrien Bilal and James H. Stock
„This paper surveys the literature that links macroeconomics and climate change. We organize our review into three categories: (i) loss and damage, which assesses long-run economic costs and non-market impacts from climate change; (ii) mitigation and the energy transition, which evaluates the macroeconomic consequences of shifting away from fossil fuels toward renewable energy; and (iii) adaptation, which explores the economic adjustments necessary to manage heat stress, more frequent severe weather events and rising seas.“
Kommentar verfassen