In a series of academic publications, Edward Nelson has contended that from the 1950s until the late 1970s, UK policymakers failed to recognise the primacy of monetary policy in controlling inflation. He argues that the highwater mark of monetary policy neglect occurred in the 1970s. This thesis has been rejected by Duncan Needham who has explored several experiments with monetary policy from the late 1960s and challenged the assertion that the authorities neglected monetary policy during the 1970s. Drawing on evidence from the archives and other sources, this article documents how the UK authorities wrestled with monetary policy following the 1967 devaluation of sterling. Excessive broad money growth during the early 1970s was followed by the highest level of peacetime inflation by 1975. The article shows that despite the experiments with monetary policy, a nonmonetary view of inflation dominated the mindset of policymakers during the first half of the 1970s. In the second half of the 1970s there was a change in emphasis and monetary policy became more prominent in economic policymaking, particularly when money supply targets were introduced. Despite this, the nonmonetary view of inflation dominated the decision processes of policymakers during the 1970s.

We provide empirical evidence that the impact of quantitative easing (QE) programs on investment is weaker for countries with high-credit market regulations. We then extend a simple DSGE model with segmented financial markets to include credit regulation and examine its impact on the transmission of conventional and unconventional monetary policies. In our model, the government requires banks to hold a fraction of their assets in government debt. We show that the presence of such regulation can invert monetary transmission under QE policy: An expansionary QE program raises term premiums on corporate bonds and causes a contraction instead of an expansion in the economy. Such a perversion is absent under conventional policy. Further, in contrast to Carlstrom et al. (2017), we show that a simple Taylor rule welfare dominates a term premium peg under financial shocks, while the peg does better in the case of non-financial shocks.

Post the great financial crisis (GFC) of 2008–2009, there has been a surge in the macroeconomics literature on aggregate uncertainty. Although the recent literature has recognized the adverse real effects of global uncertainty shocks in emerging market economies (EMEs), the role of monetary policy in offsetting these adverse effects and their link with the exchange rates is not explored in the literature. We find that the currently followed interest rate rules (IRRs) under a flexible inflation-targeting regime are ineffective in stabilizing the domestic economy during periods of high global uncertainty in the EMEs. Using a small open economy new Keynesian DSGE model with Epstein–Zin preferences and second-moment demand shocks, we compare and propose alternate monetary policy rules that significantly reduce welfare losses. We find that the best monetary policy rule in terms of welfare depends on the nature of shock that is, first-moment or second-moment shock.

We analyze financial literacy regarding interest rates, inflation, and risk diversification in nine Eastern European countries based on survey data collected in the fall 2022. The percentage of individuals with an understanding of all three concepts is generally low but varies strongly among countries, from 13 percent in Romania to 47 percent in the Czech Republic. Financial illiteracy is particularly acute among those with primary or lower secondary education. Among the three concepts, inflation is what people know best in eight out of nine countries – a pattern which has emerged recently and is in contrast to other countries, where interest rate literacy is highest. Differences in lifetime inflation experience, in particular experience of high or hyperinflation, affect inflation literacy. Higher financial literacy is associated with a higher propensity to save and a lower propensity to be financially vulnerable in six out of nine countries.

The present study discusses the current wage situation in India and the need for living wages as workers and employees grapple with the cost of living crisis. A case study of two districts of Madhya Pradesh (MP) state is presented to demonstrate how the living wage benchmarks based on the Anker Methodology compare with existing minimum wage fixations and other development indicators. The living wage benchmarking is based on field surveys conducted in Ratlam and Chhindwara districts in October–December 2021, and a rigorous analysis of nationally representative consumption and expenditure surveys conducted by the National Sample Survey Organisation and the Centre for Monitoring Indian Economy. Our living wage estimates are 1.8 times the minimum wages for agricultural labourers and 43% more than those earned by non-agricultural unskilled labourers. Moreover, the actual wages reported are less than half of the estimated living wages, indicating that the current incomes and wages for workers and farmers of rural MP are far from adequate to lead a decent life.

The title of this article is a riff off a publication of G. C. Harcourt’s 1974 piece, ‘The social consequences of inflation’. He wrote this in a period of the global economy that bears some strong similarities to our own contemporary phase when inflation is suddenly back in the global headlines. There is at least one significant difference: at that time, Harcourt highlighted inflation as the outcome of an excess of total demand in real terms over available supplies of goods and services when the potential workforces and existing stocks of capital goods were fully employed. Current inflationary pressures, by contrast, arise from the combination of specific sectoral supply bottlenecks, rising profit margins in oligopolistic global markets for food and fuel and financial speculation in these markets.

Spearheaded by the International Monetary Fund (IMF), there has been a rethinking of macroeconomic policies, in particular with regard to targeting inflation at a very low level in the wake of 2008–2009 global economic crisis. We provide a content analysis of the IMF Staff Reports on Article IV consultation of 12 Asian developing countries during the period 2009–2010 in order to see whether that rethinking has been reflected in the IMF’s advice. The findings of this study reveal that the IMF continues with its prescription of achieving low inflationary environment irrespective of country-specific circumstances.

This paper critically examines the key empirical evidence used to support the fiscal consolidation argument, complemented by a brief assessment of the limitations of the analytical foundation of the growth promoting benefits of the fiscal consolidation thesis. It also reviews the evidence on the debt-growth relationship at some length. It finds that the negative relationship between debt and GDP growth is influenced by outliers or exceptionally high debt-GDP ratios. It also points out that the composition of public debt matters. Additionally, the debt-GDP relationship appears to be non-linear—positive first and turning to negative, but there is considerable variation in the estimated turning or ‘tipping’ point, which is not helpful as a policy guide. Historical evidence does not lend support to the concerns that the current situation is likely to cause rapid upward spiraling of public indebtedness. Finally, the argument that fiscal consolidation is possible without adversely affecting growth is not based on robust empirical evidence. This conclusion is reinforced by a succinct overview of some country-specific experiences (Denmark, Ireland and United States).

Inflation rates and their convergence within Euro area have been a major concern, since well before the advent of the single currency. Inflation differentials are a normal phenomenon in any monetary union and even in long-established monetary unions. The aim of this research is to examine the main factors of inflation differentials in the Euro-zone for the period 1999–2018. Our empirical estimates appear to suggest that a one-percentage-point increase in the positive output gap typically leads to an increase of about 20 basis points in the inflation rate of EMU countries. We also find three structural breaks, in 2004, 2008 and in 2010. Since the monetary policy of the European Central Bank is geared at maintaining low and stable inflation, the productivity growth should be increased, and the real effective exchange rates should be decreased and become more homogeneous among EMU. Therefore, countries’ inflation differentials may become less persistent.

We assess the effects of financial shocks on inflation, and to what extent financial shocks can account for the “missing disinflation” during the Great Recession. We apply a Bayesian vector autoregressive model to US data and identify financial shocks through a combination of narrative and short-run sign restrictions. Our main finding is that contractionary financial shocks temporarily increase inflation. This result withstands a large battery of robustness checks. Negative financial shocks help therefore to explain why inflation did not drop more sharply in the aftermath of the financial crisis. Our analysis suggests that higher borrowing costs after negative financial shocks can account for the modest decrease in inflation after the financial crisis. A policy implication is that financial shocks act as supply-type shocks, moving output and inflation in opposite directions, thereby worsening the trade-off for a central bank with a dual mandate.

This paper constructs a two-period general equilibrium model with the effective lower bound of nominal interest rates and describes price competition among monopolistically competitive firms as a coordination game. While the model has multiple equilibria with different levels of inflation (positive or zero), the equilibrium selection in line with global games implies that the economy with high expected productivity growth moves into the positive inflation equilibrium. The policy analyses indicate that monetary policy measures such as an increase in the target inflation can prevent the economy from moving into the zero inflation equilibrium even with low productivity growth.

This study detects a structural break in international consumer price index (CPI) inflation comovement. We estimate the dynamic common factor models with unknown breakpoints of cross-country inflation rates and global price index of all commodities. We identify two global factors from the models: a commodity global factor and a noncommodity global factor. The former is a common factor between national inflation rates and commodity price index growth; the latter is a common factor among national inflation rates. The estimation of 29 countries’ quarterly CPI inflation data from 2001:Q1 to 2018:Q2 shows a one-time break in cross-country inflation dynamics in 2008:Q4. Thereafter, the importance of global factors in explaining the national inflation rates is remarkably increased. Furthermore, the increased global inflation synchronization is mainly driven by the larger role of the noncommodity global factor rather than that of the commodity global factor.

Modern economic theory gives an important role to expectations as an influence on outcomes. This paper reviews evidence on how well measures of expectations conform to outcomes. It confirms earlier results that measures taken from financial markets perform poorly as predictors of outcomes. Looking at the individual responses to the Confederation of British Industry’s Industrial Trends Survey, it does find, however, that there are significant correlations between expected and realised outcomes of wages, prices, costs orders and employment. It also finds some evidence that actual prices reflect expected future prices, but with a coefficient much lower than economic theory predicts. There is evidence that forecast errors are explained by past forecasts, as well as revisions to the economic outlook, casting doubt on the idea that firms’ forecasts make the best use of the information available at the time. The paper concludes by observing that, while expectations are undoubtedly important, economists need to build on work looking at how they are derived instead of simply assuming they are rational.

Recent contributions on ‘financial repression’ and ‘money illusion’ have referred to Maynard Keynes's How to Pay for the War as a supporting document. This article discusses whether Keynes prescribed policies of ‘financial repression’ that were implemented in the United Kingdom, and other countries, following World War II. It seems reasonable that Keynes's writings were instrumental in translating British monetary experiences of the 1920s and 1930s into expectations of policymakers during and after World War II, including a belief in ‘money illusion’ that suggested the use of inflation for driving down real interest rates of public bonds. If this was the case, How to Pay for the War could indeed provide an important explanation for the why and when of ‘financial repression’. This article argues that How to Pay for the War only partly provided support for a policy of ‘financial repression’, and none for using inflation as a ‘tax gatherer’ to the detriment of domestic savers in general. Crediting Keynes as a source for widespread ‘money illusion’ is also out of line with the historical record.

From 1716 to 1718, Sweden experienced a shock of liquidity when the absolutist regime of Charles XII issued large amounts of fiat coins (mynttecken) in order to finance the Great Northern War. After the death of the king in November 1718, the new parliamentary regime decided to partially default on the coins. In international literature, this episode is largely unknown, and in Swedish historiography, scholars have often claimed that the country's currency collapsed in hyperinflation. We assess the performance of the new coins by studying how prices of commodities in various geographic locations developed. We also study bookkeeping practices in order to see how accountants treated the new coins. Our results show that there was a complex relationship between prices and liquidity. Prices of products in high demand by the military increased more than other prices. Accountants did not treat mynttecken and other currencies differently in 1718. It was only after the death of the king that accountants started to differentiate between different types of coins. The value of the fiat coins was linked to the actions and the legitimacy of the royal regime, which is in line with the State theory of money.

This paper aims to analyze the changes in the standard of living of workers in the popular sectors of Mendoza during the “great expansion” of the Argentine economy. A series of real wages of the construction pawn in public works is calculated for 1895–1914, in order to compare it with series of real wages of low and medium public employee grades (low-level policeman, porter and clerk) and vineyard employees, which were previously estimated. In this way, we try to know if the dynamism of viticulture and public investment improved their living conditions. In addition, it seeks to compare these results with the cost of a basic basket of goods and services and calculate family income for some construction laborers identified in the National Population Census of 1895, in order to know if they insured family subsistence.

In the present work we study the evolution of the prices of the most representative goods of the Buenos Aires market in the decades after independence from the Spanish empire. The paper analyses the evolution of import, export and local prices in Buenos Aires for the first half of the 19th century and intends to contribute to a more accurate estimate of the intense process of price inflation and changes in relative prices that occurred in Buenos Aires during this period. We also aspire to be able to analyse the relationships between the increases in prices and the institutional effects of commercial blockades, the issuance of paper money and changes in the demand for goods that occurred in the commercial interaction of Buenos Aires. An attempt is also made to compare the dynamics of various baskets of goods, allowing us to evaluate the differentiated effects in local, regional and overseas supply and demand. With this in mind we analyse both general price indexes, with their main changes, and also aim to integrate a variety of products in baskets that represent as accurately as possible the diverse demands of the commercial space offered by the Buenos Aires market. Finally, we reexamine the effects of the price variations of the baskets of prices on various social sectors and regions linked to the significant interregional plaza represented by the Buenos Aires market.

The paper tests the idea that major demographic shifts can affect housing prices. We first build an overlapping generation model and analytically solve for the equilibrium price of the asset. The model predicts that economies with a higher fraction of old people in the overall population have lower house prices. We empirically test this hypothesis using data on house prices and demographic variables from the Organization for Economic Co-operation and Development (OECD). We find that if population growth increases by one percentage point, house price growth increases by 1.4 percentage points.

Mobile phones have been central to ICT innovation since the introduction of the smartphone and constant-quality prices are a barometer of their economic impact. Official consumer price indices (CPIs) indicate that impact differs wildly across countries: for the 2008–18 period, average annual rates of mobile phone inflation range from no change to a 25 per cent decline among 12 key countries examined in this paper. Although evidence indicates certain fundamental factors are at play, mis-measurement may lead the spread in rates to be overstated. Examination of methods employed in CPI calculation, including quality adjustment and index formulas, illuminates but does not resolve the mystery.

In this note, we argue that a considerable part of the explanation for the benign wage growth in the advanced world is the rise in underemployment. In the years after 2008 the unemployment rate understates labour market slack. Underemployment is more important than unemployment in explaining the weakness of wage growth in the UK. The Phillips curve in the UK has now to be rewritten into wage underemployment space. Underemployment now enters wage equations while the unemployment rate does not. There is every reason to believe that the NAIRU has fallen sharply since the Great Recession. In our view the NAIRU in the UK may well be nearer to 3 per cent, and even below it, than around 5 per cent, which other commentators including the MPC and the OBR believe.