Slow Pass-through Around the World: A New Import for Developing Countries?

Developing countries traditionally experience pass-through of exchange rate changes that is greater and more rapid than high-income countries experience. This is true equally of the determination of prices of imported goods, prices of local competitors’ products, and the general CPI. But developing countries in the 1990s experienced a rapid downward trend in the degree of pass-through and speed of adjustment, more so than did high-income countries. As a consequence, slow and incomplete pass-through is no longer exclusively a luxury of industrial countries. Using a new data set—prices of eight narrowly defined brand commodities, observed in 76 countries—we find empirical support for some of the factors that have been hypothesized in the literature, but not for others. Significant determinants of the pass-through coefficient include per capita incomes, bilateral distance, tariffs, country size, wages, long-term inflation, and long-term exchange rate variability. Some of these factors changed during the 1990s. Part (and only part) of the downward trend in pass-through to imported goods prices, and in turn to competitors’ prices and the CPI, can be explained by changes in the monetary environment—including a fall in long-term inflation. Real wages work to reduce pass-through to competitors’ prices and the CPI, confirming the hypothesized role of distribution and retail costs in pricing to market. Rising distribution costs, due perhaps to the Balassa-Samuelson-Baumol effect, could contribute to the decline in the pass-through coefficient in some developing countries.     

Role of professionalism in response to the COVID-19 pandemic: Does a public health or medical background help?

In response to the outbreak of coronavirus disease 2019 (COVID-19), there have been substantial variations in policy response and performance for disease control and prevention within and across nations. It remains unclear to what extent these variations may be explained by bureaucrats' professionalism, as measured by their educational background or work experience in public health or medicine. To investigate the effects of officials' professionalism on their response to and performance in fighting the COVID-19 pandemic, we collect information from the résumés of government and Party officials in 294 Chinese cities, and integrate this information with other data sources, including weather conditions, city characteristics, COVID-19-related policy measures, and health outcomes. We show that, on average, cities whose top officials had public health or medical backgrounds (PHMBGs) had a significantly lower infection rate than cities whose top officials lacked such backgrounds. We test the mechanisms of these effects and find that cities whose officials had a PHMBG implemented community closure more rapidly than those lacked such backgrounds. Our findings highlight the importance of professionalism in combating the pandemic.     

Does central bank communication really lead to better forecasts of policy decisions? New evidence based on a Taylor rule model for the ECB

Nowadays, it is widely believed that greater disclosure and clarity over policy may lead to greater predictability of central bank actions. We examine whether communication by the European Central Bank (ECB) adds information compared to the information provided by a Taylor rule model in which real-time expected inflation and output growth are used. We use five indicators of ECB communication that are all based on the ECB President’s introductory statement at the press conference following an ECB policy meeting. Our results suggest that even though the indicators are sometimes quite different from one another, they add information that helps predict the next policy decision of the ECB. Furthermore, also when the interbank rate is included in our Taylor rule model, the ECB communication indicators remain significant.