Working Papers
2025
May 16, 2025
The Rise and Retreat of US Inflation: An Update
Description: Why did US inflation rise over 2021-22 and why has it retreated since then? Ball, Leigh, and Mishra (2022), writing near the inflation peak, explained the rise with a framework in which inflation depends on three factors: long-term expectations; the tightness of the labor market as measured by the vacancy-to-unemployment (V/U) ratio; and large changes in relative prices in particular industries such as energy and autos. This paper finds that the same framework explains the retreat in inflation since our earlier work.
May 16, 2025
Nowcasting Global Trade from Space
Description: We introduce a nowcasting model of global maritime trade, leveraging satellite-based big data on vessel movements. This provides a timely indicator of global trade as shipping accounts for about 80 percent of worldwide merchandise trade by volume. Our approach mimics key features of the way statisticians compile trade data—measuring the customs value of imported and exported goods first, forming import and export price deflators, and then estimating import and export volumes. We show how global and regional nowcasts can be obtained using port-level data from IMF PortWatch and highlight important enhancements to the platform since its beta launch in November 2023. Finally, we demonstrate how the monthly nowcasts can be used to monitor fragmentation and regionalization in global maritime trade.
May 16, 2025
Nowcasting Real GDP in Samoa
Description: This paper describes the recent work to strengthen the nowcasting capacity at the Central Bank of Samoa (CBS). It compiles available high-frequency datasets such as tourism receipts, agriculture market survey, remittances, among others, to nowcast real GDP in Samoa. Nowcasting enables the estimation of the present and near-term forecast. It employs standard nowcasting methods such as Bridge, Mixed Data Sampling (MIDAS), and Unrestricted MIDAS (U-MIDAS). All methods significantly outperform the naive forecasts. Our analysis show that forecast combination of the three methods minimizes the root mean squared error (RMSE) for both full and pre-COVID-19 samples, while U-MIDAS performs better during crises, particularly in identifying turning points during the COVID-19 pandemic. Strengthening nowcasting capacity is important for Samoa, where real GDP data release experiences up to a 90-day lag.
May 9, 2025
The Energy Origins of the Global Inflation Surge
Description: This paper investigates the relationship between energy prices and inflation dynamics in the context of the global inflation surge during the COVID-19 pandemic. Using a comprehensive sector-level dataset covering over 30 countries and a local projections empirical strategy, we extend previous studies that primarily focused on single-country analyses or aggregate inflation measures. Our findings indicate that while the energy shocks of 2021–2022 were remarkable, the degree of inflation passthrough of energy shocks appears to be relatively stable over time. Moreover, we show that energy price shocks significantly influence inflation through stable sectoral channels, with structural characteristics such as energy dependence and price flexibility playing critical roles in the passthrough mechanism. These results underscore the necessity of a sectoral perspective in understanding inflationary pressures and highlight the importance of detailed data on price-setting mechanisms and intersectoral connectivity in understanding the energy-inflation passthrough.
May 9, 2025
Missing Home-Buyers and Rent Inflation: The Role of Interest Rates and Mortgage Underwriting Standards
Description: I study how monetary policy interacts with mortgage underwriting standards in shaping tenure decisions and rental market equilibria. Using property-level data from the American Housing Survey, I show that the increase in mortgage rates between 2021 and 2023 pushed many potential first-time home-buyers above FHA mortgage payment-to-income limits, restricting their access to home-ownership. This resulted in additional demand pressure on local rental markets, contributing to rent price inflation in 2023. Rentals located in cities with larger shares of constrained first-time buyers experienced steeper price growth, controlling for unit characteristics and contemporaneous economic developments. Rent inflation was more pronounced in smaller units occupied by lower-income renters, underscoring the potential for second-round distributional effects of monetary policy.
May 9, 2025
Leveraging Digital Technologies in Boosting Tax Collection
Description: This paper explores how digitalization in the corporate sector can boost tax revenue collection,. finding that stronger firm digitalization is associated with higher tax revenues across countries and also higher tax paid across firms. The cross-country estimates illustrate that a one-standard-deviation increase in firm digitalization is associated with an increase in tax revenues-to-GDP by up to 3 percentage points, conditional upon the level of digitalization of tax administration (GovTech). A firm-level analsis reveals that firm digitalization significantly improves tax compliance among high-risk taxpayers, such as small and informal enterprises, particularly in the service sector. This indicates that digitalization not only broadens the corporate tax base but also plays a crucial role in improving tax compliance. Moreover, both country and firm-level analyses reveal a significant synergy between firm digitalization and GovTech, undescoring the importance of promoting both to enhance tax collection. These analyses also suggest that, in developing countries, it is essential to create enabling environments for firm digitalization and GovTech and address any constraints to achieve their synergy effects.
May 9, 2025
Testing the Liquidity Support Effects of the U.S. Treasury Buyback Program
Description: The U.S. Treasury’s recently introduced liquidity support buyback program offers a natural setting to evaluate whether providing a regular mechanism for selling less liquid off-the-run Treasury securities can enhance market liquidity. In this paper, I present a direct test of this mechanism and quantify the liquidity support effects at both the individual security level and the aggregate balance sheet level of primary dealers. I utilize operational considerations related to the Treasury's selection of buyback securities that are independentof the securities’ liquidity conditions—notably, whether a security matures in a month characterized by significant cash inflows to the Treasury—to construct an instrumental variable for the Treasury’s buyback selection decisions. I find that buybacks moderately narrow bid-ask and off-the-run spreads and raise prices for securities listed by buyback, further boost prices for those purchased, and reduce primary dealers’ net holdings of Treasury bills and coupons. The liquidity support effects are particularly pronounced when dealers hold large Treasury inventories. I rationalize these findings using a model in which buybacks serve as predictable demand for dealers facing inventory constraints and holding costs, thereby mitigating illiquidity risks.
May 9, 2025
Preventing Fiscal Crises under Decentralization: Intergovernmental Policies and Institutions
Description: What instruments can governments deploy to prevent fiscal crises in decentralized fiscal systems? This analysis reveals that good public sector institutions, controls by the central government over local fiscal balances and borrowing, and intergovernmental transfers could be effective instruments for reducing the probability of a crisis. Strengthening good institutions mitigates the unwanted effects of devolution on fiscal unsustainability by inhibiting allocative inefficiencies caused by the moral hazard of governments. Expenditure decentralization to local governments increases the probability of a crisis only when local governments run large budget deficits, indicating that controls by the center over the local budget balance or borrowing ability may help to avoid overspending and the resulting excessive indebtedness. Subnational fiscal rules and administrative constraints also reduce the probability of a crisis. Intergovernmental transfers are associated with a lower probability of a fiscal crisis because they can play a role in interregional risk sharing among subnational governments.
May 5, 2025
Debt-at-Risk
Description: This paper proposes a novel framework for analyzing the risks surrounding the public debt outlook, the “Debt-at-Risk.” It employs a quantile panel regression framework to assess how current macrofinancial and political conditions impact the entire spectrum of possible future debt outcomes. Many of these factors—including financial conditions and economic variables such as initial debt and GDP growth—predict both the expected level and the uncertainty of future debt, implying pronounced variations in risks, especially in the upper tail of the distribution. By combining the roles of these factors, we find that in a severely adverse scenario—the 95th percentile of the future debt distribution, or debt-at-risk—global public debt could be approximately 20 percentage points higher than currently projected. The magnitudes and sources of debt risks vary over time and across countries, with high initial debt amplifying the effects of economic and financial conditions on debt-at-risk. Furthermore, empirical estimates indicate that debt-at-risk is a key variable for predicting fiscal crises.
May 2, 2025
Fiscal Financing and Investment Irreversibility: The Role of Dividend Taxation
Description: We examine the macroeconomic, asset pricing, and public debt consequences of deficit financing dividend taxation in a dynamic general equilibrium model featuring partial investment irreversibility. Dividend taxes interact directly with the occasionally-binding irreversibility constraint, generating tax-augmented user-cost and hangover channels that both shape investment and debt-to-output fluctuations and account for a sizeable share of their long-run volatilities. Our analysis further reveals that debt-offsetting dividend tax hikes initially trigger investment inactivity through higher user-costs, followed by a surge driven by intertemporal tax arbitrage and hangover effects. Finally, debt-driven dividend tax rules amplify asset price fluctuations while delivering only modest fiscal revenue changes.