Olivier Blanchard's Book for Open Review

If you want to read on how fiscal policy operates during low interest rate regime, you can read the Draft of the book by Olivier Blanchard here. You can also post your comments and suggestions.

In another post, he wrote 45 Key Takeaways from the book, explaining why the low real interest rates require a revisit to the scope and roles of fiscal policy. I posted 3 take aways below:

"ON THE EVOLUTION OF RATES

1. Safe real interest rates have declined steadily since the mid-1980s. The decline is due neither to the global financial crisis nor to the COVID-19 crisis. It has been common to all advanced economies.

2. Taking a much longer view, safe real interest rates have actually declined since the 14th century.... But the recent decline is much more pronounced.

3. The decline in safe real interest rates reflects a decline in neutral interest rates, i.e., the rates consistent with full employment. They reflect a chronic weakness in private demand—equivalently strong saving and weak investment, together with a strong demand for safe assets. This situation is what Alvin Hansen and, more recently, Lawrence Summers have called secular stagnation..."

Image credit - IMF Blog

Soaring Consumer Food Prices

Here are four facts why the food prices increase during the pandemic, according to this article (verbatim):

Fact #1: Food price inflation started increasing before the pandemic.

Fact #2: Early lockdown measures and supply chain disruptions induced a spike in consumer food prices.

Fact #3: Soaring shipping and transport costs.

Fact #4: Global food producer prices have rallied reaching multi-year highs.

Excerpt:

"Outlook

Based on the four facts presented, it is plausible that consumer food price inflation will pick up again in the remainder of 2021 and 2022. Indeed, the recent sharp increase in international food prices has already slowly started to feed into domestic consumer prices in some regions as retailers, unable to absorb the rising costs, are passing on the increases to consumers. More is likely to come, however, since international food prices are expected to increase by about 25 percent in 2021 from 2020, stabilizing in 2021. A pass-through of 20 percent (13 percent in the first year and 7 percent in the second) would, thus, imply an increase in consumer food price inflation of about 3.2 percentage points and 1.75 percentage points on average in 2021 and 2022, respectively. An additional 1 percentage point to the 2021 global consumer food inflation could be added by the higher freight rates."  

Note: For my PhD thesis, I estimated the pass-through of PPI to CPI. Glad to see that the estimate was quite close. Time to re-visit exchange rate pass-through.

Source: IMF Blog

The Tradeoff in Patents Rights for Intellectual Property for Covid-19

An interesting question  from the Econlife Blog here. What do you think?

Excerpt:

"However, the tradeoff takes us to the role of incentives in vaccine markets. An unusually large proportion of economists agree that by removing intellectual property protections, we negatively impact future vaccine development:.."

Image credit - econlife Blog.

Image credit - MSF Access Campaign

Inflation and Reconversion

Since inflation is on the rise lately, here is another interesting take on the issue.

Excerpt:

"Reconversion: a better lesson from history

A better historical analogy than the 1970s for today’s inflation problem is the reconversion of the U.S. economy from wartime to peacetime production after World War II and the Korean War. For instance, civilian automobile production ended in early 1942 and didn’t resume until late 1945. It took time to reconvert factories from making aircraft engines to automobile engines."

Image credit - Pinterest. Vintage Art of Inflation in 1946.

Depression in terms of a Cyclone - Tropical Depression 29

A Tropical Depression: As the heat energy is released from the cooling water vapor, the air at the top of the clouds becomes warmer, making the air pressure higher and causing winds to move outward away from the high pressure area. ...When the winds reach between 25 and 38 mph, the storm is called a tropical depression.

Tropical Depression 29 repercussions are now hitting Malaysia. Stay Safe Everyone.

Source - Internet.

Image credit - The Vibes

$226 Trillion Global Debt

Excerpt from the IMF Blog's article:

"In 2020, we observed the largest one-year debt surge since World War II, with global debt rising to $226 trillion as the world was hit by a global health crisis and a deep recession. Debt was already elevated going into the crisis, but now governments must navigate a world of record-high public and private debt levels, new virus mutations, and rising inflation."

Image credit - IMF Blog

Turkish Lira and Zambian Kwacha

The inflation rate is rising globally due to Covid-19 endemic. Every central bank has responded by either raising interest rates or committing to raising them in the immediate future. Since September, Turkey has cut interest rates by four percentage points from 19% to 15%, The lira has now lost nearly 40% of its value since the beginning of the year. More of the story here.

Excerpt:

"It was the best of times, it was the worst of times", so begins the Charles Dickens classic, A Tale of Two Cities. In 'A Tale of Two Currencies' divergent trends have been seen in Zambia and Turkey over the second half of 2021 so far, and the latest PMI business survey data compiled by IHS Markit for these countries highlight the impacts currency movements can have on inflationary pressures and business performance.

Image credit - IHS Markit