We study how consumer preferences affect the transmission of microeconomic price shocks to consumer price index (CPI) inflation. These preferences give rise to complementarities and substitutions between goods, generating demand-driven cross-price dependencies that either amplify or mitigate the impact of price shocks. Our results demonstrate that while both effects are present, positive spillovers due to complementarities dominate. The magnitude of these cross-price effects is significant, demonstrating their importance in shaping CPI inflation dynamics. Most importantly, demand-driven price linkages decisively shape the impact of producer prices on CPI inflation. These findings underscore the need to take into account demand-driven price dependencies when assessing the impact of price shocks on CPI inflation, rather than relying solely on supply-related ones.

Rigorous methods have recently been developed for statistical inference of Malmquist productivity indices (MPIs) in the context of nonparametric frontier estimation, including the new central limit theorems, estimation of the bias, standard errors and the corresponding confidence intervals. The goal of this study is to briefly overview these methods and consider a few possible improvements of their implementation in relatively small samples. Our Monte-Carlo simulations confirmed that the method from Simar et al. (2023) is useful for the simple mean and aggregate MPI in relatively small sample sizes (e.g., up to around 50) and especially for large dimensions. Interestingly, we also find that the “data sharpening” method from Nguyen et al. (2022), which helps in improving the approximation in the context of efficiency is not needed in the context of estimation of productivity indices. Finally, we provide an empirical illustration of the differences across the existing methods.

This study investigates the contribution of financial frictions in term premiums on long-term bonds within a production economy. We consider a New Keynesian model, featuring an agency problem between financial intermediaries and their private creditors and generalized recursive preferences. The model predicts that financial frictions that amplify the impact of structural shocks on key macroeconomic variables increase term premiums under our baseline calibration. Furthermore, financial frictions produce a larger term premium when monetary policy is geared toward output over inflation stability. The novel mechanism that financial frictions increase term premiums are associated with the bank balance sheet channel of monetary policy.

This paper investigates the bidirectional relation between the Brazilian Central Bank communication and the yield curve. Using latent factors, observable macroeconomic variables, and observable variables representing Central Bank communication, we estimate a model that summarizes the yield curve. We find evidence of the effects of Brazilian Central Bank communication on the movements of the yield curve and the impact of the yield curve components in Brazilian Central Bank communication. In particular, Central Bank communication can shape yield curve curvature and slope. Additionally, we find a strong relation between Central Bank communication and the curvature of the yield curve. These results show that Central Bank communication impacts market players, making it a valuable instrument for monetary policy.

This paper examines an endogenous growth model that allows us to consider the dynamics and sustainability of debt, pollution, and growth. Debt evolves according to the financing adaptation and mitigation efforts and to the damages caused by pollution. Three types of features are important for our analysis: the technology through the negative effect of pollution on TFP; the fiscal policy; the initial level of pollution and debt with respect to capital. Indeed, if the initial level of pollution is too high, the economy is relegated to an endogenous tipping zone where pollution perpetually increases relatively to capital. If the effect of pollution on TFP is too strong, the economy cannot converge to a stable and sustainable long-run balanced growth path. If the income tax rates are high enough, we can converge to a stable balanced growth path with low pollution and high debt relative to capital. This sustainable equilibrium can even be characterized by higher growth and welfare. This last result underlines the role that tax policy can play in reconciling debt and environmental sustainability.

We construct a Divisia money measure for U.K. households and private non-financial corporations and a corresponding dual user cost index employing a consistent methodology from 1977 up to the present. Our joint construction of both the Divisia quantity index and the Divisia price dual facilitates an investigation of structural vector autoregresssion models (SVARs) over a long sample period of the type of non-recursive identifications explored by Belongia and Ireland (2016, 2018), as well as the block triangular specification advanced by Keating et al. (2019). An examination of the U.K. economy reveals that structures that consider a short-term interest rate to be the monetary policy indicator generate unremitting price puzzles. In contrast, we find sensible economic responses in various specifications that treat our Divisia measure as the indicator variable.

A growing body of literature proposes a climate-oriented monetary and financial policy for Central Banks (CBs). However, other literature defends a market-neutral monetary policy to keep CB independence and avoid addressing other than conventional objectives. However, if the CBs’ market-neutral policy is only targeting inflation rates and employment, it could amplify the macro impacts of negative economic externalities, while also neglecting positive externalities in the long-run. Even if climate-related policy goals appear advisable, the actions of CBs reveal significant delayed impacts on macro and climate-risk variables. We propose a non-linear dynamic macro model of finite horizon with multiple targets, including macro imbalances and climate risks arising from a trend in carbon emissions. This non-stationary emission dynamic has feedback effects on stationary and non-stationary macro variables and the multiple (possibly conflicting) objectives of the CBs. In this context, we first explore to what extent CBs can impact emission trends with and without delays. Second, given the mix of stationary and non-stationary dynamic variables, we explore the responses to policy and economic and financial shocks using a mixed Vector Error Correction Model (VECM) with stationary and non-stationary variables. Third, in the face of multiple objectives—and macroeconomic concerns that CBs face—we are motivated by Kaya and Maurer (2023) to construct a Pareto front that introduces weights for the multiple objectives and permits target prioritization.

This paper examines the impact of financially constrained intermediate inputs on within-industry total factor productivity loss. Utilizing exogenous tax reforms in China as a natural experiment, our difference-in-difference analysis reveals that reduced tax burdens lead to increased firm-level intermediate inputs, particularly among financially constrained firms. We incorporate financially constrained intermediate inputs into a partial equilibrium model of firm dynamics. Our calibration suggests that financially constrained intermediate inputs play a quantitatively more important role in accounting for misallocation than financially constrained capital. The presence of financially constrained intermediate inputs introduces a downward bias in the measurement of value-added productivity, especially for firms in the top decile of gross-output productivity. As a result, the average “efficient” levels of capital and labor for the top decile firms in the standard Hsieh and Klenow (2009) exercise are lower than what is truly efficient.

How do geopolitical risk shocks impact monetary policy? Based on a panel of 18 economies, we develop and estimate an augmented panel Taylor rule via constant and time-varying local projection regression models. First, the panel evidence suggests that the interest rate decreases in the short run and increases in the medium run in the event of a geopolitical risk shock. Second, the results are confirmed in the time-varying model, where the policy reaction is accommodating in the short run (1 to 2 months) to limit the negative effects on consumer sentiment. In the medium term (12 to 15 months), the central bank is more committed to combating inflation pressures.

Building on Lucas (1988) and Boucekkine et al. (2013), we develop a model in which the impact of population dynamics on per capita GDP and human capital depends on the balance of intertemporal altruism effects toward future generations and class-size effects on an individual’s education investment. We show that there is a critical level of the class-size effects that determines whether a decline in population growth will lead to a decrease or an increase in a country’s long-run growth rate of real per capita income. We take the model to OECD data, using a semi-parametric technique. This allows us to classify countries into groups based on their long-term growth trajectories, revealing patterns not captured by previous studies on the topic.