Category: Macroeconomics

Commentary, Macroeconomics

COMMENTARY: Is Banking Regulation a Vicious Cycle?

Eric Gao

Araha Uday, Stanford University -- Supervision and regulation as we know emerged following the Great Recession when policymakers vowed to prevent what took place then–billions of dollars in bailouts for the biggest banks—from happening again. Although the majority of bailed-out banks eventually repaid their loans (leading to the federal government profiting $109 billion), some still have outstanding balances.  Still, a few missed payments are a small price to keep banks afloat; at least a chance of future repayment remains. A complete bank failure, on the other hand, would mean no repayments at all, highlighting the high stakes in maintaining a stable banking system.

Commentary, Macroeconomics

COMMENTARY: The World Trade Organization Is Dying—And U.S. Consumers Will Pay the Price

Eric Gao

Amy Cao, Stanford University -- On January 20, President Trump returned to office. In the month since, the President has levied 25% tariffs against Canada and 10% tariffs against China. After President Trump’s first term already dismantled the World Trade Organization (WTO) and associated guardrails, the effects this time could be catastrophic beyond imagination.

Macroeconomics

Fortune Favors the Bold: Impact of International Knowledge Transfer on Economic Growth

Karthick Arunachalam

Michael Chen, Northwestern University -- Why do some poor countries exhibit rapid economic growth while others do not? Traditional growth models, which rely on factors of production, theorize that there will be economic convergence since there are diminishing returns to input growth, yet empirical evidence exists both for and against this theory. In this paper, I research the extent to which knowledge growth drives economic growth.

Macroeconomics

The Impact of the Russian Food Embargo on International Agri-Food Trade

Karthick Arunachalam

Brendon Carter, University of Illinois Urbana-Champaign -- In 2014, after the Russian annexation of Crimea and the resulting Western sanctions on Russia, Russia responded by imposing a ban on most food imports from the sanctioning countries, which included the European Union, the United States, Canada, Norway, and Australia. This study uses a structural gravity model to empirically analyze the impacts of the Russian food embargo on bilateral trade flows, welfare, and prices, paying particular attention to the spillover impacts of this trade restriction on third countries, or countries outside of the ban. The key finding from this analysis is that many third countries underwent price impacts due to the embargo that were as large in magnitude as those for the directly-embargoed countries. The results of this analysis show that sanctions can have strong multilateral impacts that go well beyond their intended scope.

Commentary, Macroeconomics

LONG-FORM COMMENTARY: Can Benjamin Keep His Throne as the King of Currency?

Karthick Arunachalam

Gabriel Bo, Stanford University -- The US dollar (USD) has been the default global reserve currency since the end of World War II, meaning most countries see the dollar as a safe investment and typically keep it in their coffers to conduct trade. At its highest, more than 71% of the world’s central bank reserves utilized dollar assets—that number has dropped to 59% today, but it still remains unrivaled. 

Commentary, Macroeconomics

COMMENTARY: Peso Predicaments: Economic Turmoil in Argentina

Karthick Arunachalam

Arz Taneja, St. Stephen's College, University of Delhi -- Argentina is in trouble—economic trouble. Inflation has breached a new ceiling, crossing the 120 percent mark. The Argentine peso is at risk of yet another devaluation, leading to the currency being traded on the black (or should we say blue) market for the dollar at prices roughly double that of the current exchange rate. In an effort to stabilize the peso, the Argentine government imposed a slew of rules and regulations on how dollars can be accessed, which has led to the birth of a dozen different exchange rates, several of which are quite strange. For instance, under the “Coldplay Dollar” exchange rate (374 pesos per dollar), concert promoters who book performers charging in dollars are subject to a 30 percent tax, which fans ultimately have to cover on top of ticket costs.  

Commentary, Macroeconomics

LONG-FORM COMMENTARY: Meeting the Fed’s Mandate: The Recent Past and a Look Into the Future

Karthick Arunachalam

Rutvij Thakkar, Claremont McKenna -- The Federal Reserve’s dual mandate is as simple as holding unemployment below 4% and inflation below 2%. Unemployment should ideally be at the “natural rate” or the lowest unemployment rate possible without creating inflation. According to the Federal Reserve Economic Database, it’s the rate of unemployment arising from all sources except fluctuations in aggregate demand. Since the Baby Boomer generation has chosen to leave the workforce and retire, the Natural Rate—now called the Noncyclical Rate—of unemployment has consistently declined since 1980 to approximately 4%.

Commentary, Macroeconomics

COMMENTARY: The Pandemic Economy and the Power of Labor

Karthick Arunachalam

Devan Bhumralkar, Stanford University -- Inflation has become an unfortunate fact of life in the post-pandemic era. But with Americans dipping deeper into their savings for holiday shopping and keeping their houses a little cooler this winter season to save on energy costs, many are wondering when—and how—it ends. The Federal Reserve has been on a rate-raising mission to combat inflation since early 2022, but while everyone is concerned about consumer prices, what this means for the job market remains to be seen. By the time the dust settles in the pandemic economy, workers may emerge with higher wages and bargaining power.

Macroeconomics

Keystroke Money: Empirical Evidence From India (1999-2019)

etang21

Louis Lamaury, University of Leeds -- Since the revival of money supply endogeneity of the 1980s, post-Keynesian monetary theory has become increasingly accepted in central banking institutions. In developed economies, academia has paved the way forward through empirical research but has often neglected developing economies. This paper investigates the exogenous-endogenous money supply hypothesis in India from 1999 to 2019.