Recommended Weekend Reading
June 9 - 11, 2023
Here are our recommended reads from reports and articles we read in the last week. We hope you find these useful and have a great weekend. And let us know if you or someone you know wants to be added to our distribution list.
· “What Caused the U.S. Pandemic-Era Inflation?” Ben Bernanke and Olivier Blanchard, Hutchins Center on Fiscal & Monetary Policy, Brookings Institution
The authors answer the question posed by the title by specifying and estimating a simple dynamic model of prices, wages, and short-run and long-run inflation expectations. They find that contrary to early concerns that inflation would be spurred by overheated labor markets, most of the inflation surge that began in 2021 was the result of shocks to prices given wages, including sharp increases in commodity prices and sectoral shortages. However, the effects of overheated labor markets on nominal wage growth and inflation are more persistent than the effects of product-market shocks. Controlling inflation will thus ultimately require achieving a better balance between labor demand and labor supply.
· “China is Doubling Down on its Digital Currency” Foreign Policy Research Institute
China’s central bank continues to take aggressive steps toward assimilating the digital yuan within its domestic financial system. Despite these efforts, less than a fifth of the Chinese population has utilized it. While China continues to be a pioneer in digital currency development, the United States is yet to even pilot a digital dollar. China, the world’s largest bilateral creditor, and leading trading partner, could use the digital yuan to elevate the status of the renminbi and challenge the dominance of the US dollar. The United States is at risk of losing economic leverage and international financial power if Beijing continues to dictate the norms of regulations of digital currencies.
· “The Return of Industrial Policy” International Monetary Fund
Douglas Irwin, a Professor of Economics at Dartmouth, writes for the IMF’s Finance & Development Magazine that geopolitics is rapidly changing the landscape of world trade. Trade interventions are on the rise in the form of industrial policies and subsidies, import restrictions based on national security and environmental concerns, and export controls to punish geopolitical rivals and ensure domestic supply. What should developing economies do to navigate this new environment? Should they adopt similar policies, turning inward to protect key sectors with subsidies and trade controls?
Map of the Week
Norway is planning to pursue major deep-sea mining efforts for metals critical to battery building off its coast. A formal plan is expected to be released in the next two weeks that will open an area the size of Germany to the mining for critical minerals. The Norwegian Parliament has to vote on the proposal, which is being opposed by fishermen and environmental groups.
Volcanic springs up to 4,000m deep contain an estimated 38mn tonnes of copper, more than is mined around the world each year.
