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Inflationary and Deflationary Pressures: A Behavioral Decomposition of U.S. Inflation Dynamics
No full textThis paper develops a novel behavioral decomposition of inflation as the net outcome of two competing forces: inflationary pressure, defined by the frequency and magnitude of price increases, and deflationary pressure, determined by corresponding price decreases. Using 245 PCE sub-indices spanning 1959-2024, we construct an exact bottom-up inflation measure that transparently maps sectoral price-setting behavior into macroeconomic aggregates. Our decomposition reveals fundamental asymmetries in inflation formation: inflationary pressure exhibits dramatic variation (2.35%-12.68%) while deflationary pressure remains remarkably stable (0.72%-5.18%), indicating inflation episodes are primarily driven by surges in upward pricing momentum rather than retreats of downward movements. Historical analysis shows distinct pressure regimes across major macroeconomic episodes: the Great Inflation featured extreme inflationary pressure volatility, the Great Moderation achieved balanced dynamics, the 2008-2009 crisis uniquely witnessed deflationary pressure dominance creating deflation risk, while COVID-19 saw dramatic inflationary pressure resurgence. We reassess the price puzzle using Bayesian local projections with alternative monetary policy shock identifications. Conventional narrative shocks generate sustained inflationary pressure increases with minimal deflationary response, while informationally robust shocks resolve the puzzle completely through both increased deflationary pressure and reduced inflationary pressure, with the deflationary channel providing the dominant contribution consistent with demand-channel transmission. Extensive robustness checks across specifications and estimation methods confirm these findings while revealing the diagnostic value of pressure decomposition for evaluating shock quality. Results demonstrate that the price puzzle reflects informational frictions rather than genuine economic phenomena, and suggest successful monetary policy operates through managing pressure balance with important implications for real-time policy diagnosis and central bank communication
Modern Economy and Reconsideration of the Equilibrium Assumption : Is it possible to reconstruct "effective" economics?
No full textThis paper challenges traditional economics' reliance on Adam Smith's "invisible hand" and its assumption of equilibrium derived from nominal variables, arguing that this hinders economists' understanding of modern economies. It proposes "dynamic equilibrium," where stability arises from interactions between agents' internal characteristics and external factors.
A key equation derived from the paper is "R_t-ρ=n+D_a-(U_(θa)θ)/U_c". Its left-hand side, the discrepancy between asset return (R_t) and time preference rate (ρ), is balanced by two forces on the right-hand side: retaining capital within the economy (the marginal utility of assets compared to consumption) and promoting its diffusion and dilution (capital outflow (D_a) and population growth (n)). That suggests that if time preference is an inherent trait, economies with a lower time preference will have a funds surplus, but this will be partially offset by capital outflow or a weak asset preference, so the decline in the real interest rate will be limited, and vice varsa.
The paper argues that while conventional economics has focused on the left-hand side of this equation, understanding the right-hand side is crucial. This mechanism will be able to pragmatically explain various modern economic phenomena through the immobilization of the relations between debtor and creditor even when agents are rational and markets are efficient : for example, long-term global imbalances, deflationary equilibrium in developed economies, and inequalities of income and assets and so on. Ultimately, the paper reinterprets modern economic disequilibrium as a result of rational agent behavior, offering insights for more effective macroeconomic policy
Carbon emissions, financial stability and bank profitability in non-crisis years
No full textCarbon emissions, or CO2 emissions, is an important but often overlooked factor affecting financial stability and bank profitability in non-crisis years. The effect of carbon emissions on financial stability and bank profitability in non-crisis years has not been examined in the literature. It is argued that carbon emissions can bring about changes in the environment that create health challenges and financial risks which affect bank profitability and pose a threat to the stability of the financial system in non-crisis years. This study examines the effect of carbon emissions on bank profitability and financial stability in non-crisis years. Twenty-two diverse countries were analysed in non-crisis years. The findings reveal that higher carbon emissions impair financial stability by decreasing banking sector solvency and capital buffer which impair financial stability. Institutional quality mitigates the adverse effect of carbon emissions on financial stability by ensuring greater banking sector solvency in carbon-intensive environments. Institutional quality also reinforces the positive relationship between carbon emissions and bank profitability, particularly banking sector non-interest income. Lagged nonperforming loans, institutional quality, economic growth and regulatory capital ratio are significant determinants of financial stability in non-crisis years while the determinants of bank profitability in non-crisis years are lagged return on asset, the efficiency ratio, institutional quality, inflation rate and unemployment rate
Testing the environmental Kuznets curve hypothesis in Madagascar: Empirical evidence using the ARDL approach
No full textThis study tests the Environmental Kuznets Curve (EKC) hypothesis in Madagascar using time-series data from 1990 to 2015. Employing the autoregressive distributed lag (ARDL) approach and Granger causality tests, we analyze the nexus between CO emissions, economic growth, agricultural production, and trade openness. Results confirm a U-shaped EKC, with economic growth initially reducing emissions before increasing at higher income levels. Trade openness marginally reduces emissions, while agricultural production has no significant impact. Granger causality tests indicate that economic growth drives emissions. Policy recommendations include promoting trade in environmentally friendly goods and investing in clean energy to mitigate emissions
Debt Dynamics and Economic Growth
No full textThis paper assesses the impact of unanticipated shocks to public debt on Pakistan’s economic growth. Following the methodology of Soyres, Kawai, and Wang (2022), a series of forecast errors is constructed to serve as exogenous shocks in analyzing their effects on real GDP. Using data from 1994 to 2023, the analysis reveals that a 1.0 percent unanticipated increase in the debt-to-GDP ratio leads to a 0.14 percent decline in real GDP in the subsequent year. This negative impact highlights the need to identify a debt threshold beyond which economic growth is adversely affected. Applying threshold regression techniques, a critical debt threshold of 57 percent is estimated for Pakistan. The findings underscore the importance of gradual fiscal adjustments to place the debt-to-GDP ratio on a declining and sustainable path
L’aide publique au développement face aux chocs externes : quel rôle pour la résilience économique des pays de l’UEMOA ?
No full textThis study examines the impact of Official Development Assistance (ODA) on economic
resilience in WAEMU countries, aiming to identify critical dependency thresholds beyond
which aid effects become significantly positive or negative, while analyzing specific channels
through which ODA influences growth and shock absorption capacity. The methodology
employs two complementary approaches applied to a panel of eight WAEMU countries over
the period 2000-2022: the Panel Smooth Transition Regression (PSTR) model to capture the
non-linear relationship between ODA and economic growth, and the Fully Modified Ordinary
Least Squares (FMOLS) approach to identify transmission channels while correcting for
endogeneity bias. Results confirm the existence of a robust non-linear relationship with
convergent critical thresholds: 7.86% of GDP using the PSTR model and an optimal range of
8-10% of GDP with the FMOLS approach, below which aid effects are negative and beyond
which diminishing returns appear. Channel analysis reveals that governance constitutes the
most powerful determinant of economic resilience with an impact four times greater than
investment and eight times greater than direct ODA, while crises reduce growth by 0.68
percentage points and increase inflation by over 3 points, confirming the region's strong
structural vulnerability. These findings imply that aid effectiveness fundamentally depends on
respecting optimal thresholds and prioritizing institutional strengthening, requiring a redesign
of allocation strategies that favor governance and capacity-building programs, while
maintaining aid flows within the critical range of 8-10% of GDP and diversifying financing
sources to reduce external dependence and strengthen resilience against future shocks
Reduction analysis of hierarchical spatial economy: Trade strategy around Brexit
No full textThis paper investigates how international trade competition influences cross-country migration by using a general equilibrium model of economic geography. We employ a global--local system to represent local places grouped into countries, which collectively form a global network. Through the place-to-country reduction analysis proposed herein, the governing equation at the place level are reduced to a country-level equation that efficiently describes each country’s trade environment. We model and analyze international trade competition---including trade liberalization and protectionism---among the UK, France, and Germany, using the Helpman (1998) model. The recommended strategies for the UK and the EU include
reducing domestic transportation costs, while tariffs and retaliatory tariffs act as a double-edged sword, potentially enhancing or undermining their trade positions
Maastricht Criteria and Public Debt
No full textThe Maastricht Criteria, also known as the convergence criteria, are a set of economic and fiscal requirements established by the Maastricht Treaty in 1992 to ensure that European Union (EU) member states maintain economic stability and are prepared for participation in the Economic and Monetary Union (EMU) and adoption of the euro. Among these criteria, public debt plays a crucial role in maintaining fiscal discipline and preventing excessive government borrowing that could undermine economic stability.
Specifically, the Maastricht Criteria set a limit on public debt at no more than 60\% of a country’s Gross Domestic Product (GDP), alongside a fiscal deficit ceiling of 3\% of GDP. These thresholds aim to promote sustainable public finances, reduce the risk of debt crises, and foster confidence among member states and investors. Understanding the criteria related to public debt is essential in assessing the fiscal health and convergence readiness of countries within the EU framework
Founding India’s Barefoot Unicorns: A Policy Framework for MSME Incubation, Acceleration, and Massive Job Creation
No full textIn India, entrepreneurship is often reduced to skilling combined with nano-finance. Public programs largely wash their hands after budgeting for short-term training, linking to microfinance, and creating shared infrastructure — all designed to serve large numbers of mass entrepreneurs at subsistence levels. This paper takes a 180-degree sharp reversal of that approach. It argues that by ignoring the more aspirational, growth-ready entrepreneurs — those sitting at the top of the local entrepreneurial networks — current policies are actually promoting enterprises sub-optimally, and failing to unlock the real potential of India’s unincorporated sector. The paper proposes an Acceleration Model focused on identifying and backing Barefoot Unicorns — the high-aspiration HWEs and αHWEs strategically positioned at the top of local entrepreneurial networks — through adaptive incubation, behavioral conditioning, flexible finance (revenue-based financing, micro-equity), and network-driven scale, aligned to the unpredictable, non-linear journey toward Product–Market Fit (PMF). Even a modest shift could unlock 18 crore new jobs. This paper offers a strategic blueprint for governments, catalysts, CSR, incubators, investors, lenders, and DPI ecosystem actors to move beyond outcome-poor schemes towards high-leverage, ROI-maximizing entrepreneurship models
Inequality Reduction in Mongolia: A Dynamic Income Source Analysis
No full textBetween 2007 and 2022, Mongolia’s Gini coefficient decreased by 26 percent. Structural economic shifts, labor market changes, and evolving income composition drive this reduction. Using dynamic income source decomposition on household survey data, this study finds that reduced shares and concentration of imputed housing consumption and self-employment income were the main equalizing forces. In contrast, rising wage shares exerted upward pressure on inequality despite declining wage concentration. The expansion of employment in the mining, trade, and finance sectors, along with broad coverage of social welfare programs, especially child benefits, played a significant role. Pandemic-era transfers amplified the effect of the social transfers. However, gender wage gaps, regional disparities, and vulnerability of herder households persist. The results underscore the importance of targeted labor market policies, improved social transfer design, and resilience measures for rural livelihoods in resource-dependent developing economies