The New Paradigm Papers of the Month of September
Once a month the Forum New Economy is showcasing a handful of selected research papers that lead the way towards a new economic paradigm.
PUBLISHED5. SEPTEMBER 2023
READING TIME7 MIN
What Caused the US Pandemic-Era Inflation?
By Olivier J. Blanchard & Ben S. Bernanke
What caused US pandemic-era inflation? In a recent working paper, Olivier Blanchard and Ben Bernanke address this question by developing a dynamic model to assess the factors influencing prices, wages, and inflation expectations. Their model scrutinizes the impact of market and labor-related shocks on prices and nominal wages, shedding light on the sources of inflation and wage growth during this period. Contrary to initial concerns that high labor demand would drive inflation, their findings indicate that the 2021 inflation surge was primarily due to price shocks. These shocks encompassed significant rises in commodity prices due to robust overall demand and sector-specific price spikes linked to shifts in demand patterns and supply constraints. While labor market tightness hasn’t been the primary inflation driver, their research underscores the enduring influence of overheated labor markets on wage growth and inflation compared to product-market shocks. Ultimately, addressing inflation will necessitate achieving a more balanced labor demand and supply dynamic.
Distributional National Accounts (DINA) for Germany, 1992-2016
Stefan Bach, Charlotte Bartels & Theresa Neef
This paper from DIW researchers Stefan Bach, Charlotte Bartels and Theresa Neef presents Distributional National Accounts (DINA) data for Germany spanning from 1992 to 2016. The methodology combines personal income tax records with SOEP survey data to estimate the distribution of national income, following the DINA approach established by Piketty et al. (2018). The findings reveal that in Germany, economic growth favored the wealthy from 1992 to 2007 but shifted to benefit the less affluent from 2007 to 2016. Despite an increase in labor incomes for the bottom 50% since 2007, the income gap between this group and the top 10% has widened. This polarization can be attributed to the continuous growth in labor income among the lower 9% of the top decile (P90-99). Additionally, the top 0.1% receives approximately 7% of the national income, a figure similar to the United States and twice as high as in France.
Climate policy at the Bank of England: the possibilities and limits of green central banking
Although climate change has been a long-standing public policy concern, central banks have only recently integrated it into their objectives. The Bank of England (BoE) took an early stance in 2015. In a recent policy paper, Monica DiLeo explores the key factors that facilitated this shift. She finds that firstly, the macroprudential framework, stemming from the Global Financial Crisis (GFC), provided central bankers with the tools to comprehend climate change’s relevance to their goals. Additionally, government backing for BoE’s climate action played a crucial role by establishing a transition path and lending political legitimacy. As a result, BoE policies not only mitigate climate-related risks but also actively redirect credit toward environmentally sustainable enterprises. However, she contends that this doesn’t signify a fundamental shift in the BoE’s institutional role but rather represents a mode of policy innovation responsive to changing challenges. Although the BoE’s hierarchy of objectives remains unchanged, the nature of the policy issues related to these goals has evolved significantly. Lastly, DiLeo offers insights into the scope and longevity of the BoE’s approach to climate change, contributing to the broader literature on central banking and climate change by providing a framework to understand the possibilities and constraints of current central bank approaches to this global issue.
Disinformation – A Challenge for Democracy
In the EU, there is a strong demand for more action against the deliberate spread of false and fake content online. A recent study from the Bertelsmann Stiftung’s Upgrade Democracy project reveals that 85% of EU citizens believe policymakers should take greater measures to combat disinformation, and 89% think social media platforms should also do more. The study highlights a significant recognition of the issue within the EU, with 54% of respondents often feeling unsure about the truthfulness of online information, and 39% admitting to encountering disinformation. According to Kai Unzicker, the study’s author, reliable information is essential for informed opinions and democratic discourse. He emphasizes that addressing disinformation is crucial for protecting and strengthening democracy, and individuals should not be left to tackle this challenge alone.
Income misperception and populism
Thilo N. H. Albers, Felix Kersting & Fabian Kosse
In a recent working paper, Thilo N. H. Albers, Felix Kersting & Fabian Kosse from Würzburg University find that erroneous perceptions of one’s current economic status play a significant role in explaining populist inclinations. In a comprehensive survey of German households, where they gauge individuals’ receptiveness to right-wing populism and their perceived income positions, they observe that those harboring pessimistic views about their income are more receptive to populist rhetoric. Notably, gender disparities are crucial in understanding the interplay between misperception and populism: men tend to express greater affinity for populist ideals when dissatisfied. Interestingly, providing straightforward information neither leads to a lasting correction of misperceptions nor effectively mitigates populist tendencies.