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Opening the black box of local projections

08/27/2025 European Central Bank Central banks

Local projections (LPs) are widely used in empirical macroeconomics to estimate impulse responses to policy interventions. Yet, in many ways, they are black boxes. It is often unclear what mechanism or historical episodes drive a particular estimate. We introduce a new decomposition of LP estimates into the sum of contributions of historical events, which is the product, for each time stamp, of a weight and the realization of the response variable. In the least squares case, we show that these weights admit two interpretations. First, they represent purified and standardized shocks.

Geography versus income: the heterogeneous effects of carbon taxation

08/27/2025 European Central Bank Central banks

The distributive effects of carbon taxation are critical for its political acceptability and depend on both income and geographic factors. Using French administrative data, household surveys, and matched employer-employee records, we document that rural households spend 2.8 times more on fossil fuels than urban households and are employed in firms that emit 2.7 times more greenhouse gases. We incorporate these insights into a spatial heterogeneous-agent model with endogenous migration and wealth accumulation, linking spatial and macroeconomic approaches.

Economists Warn: Trump’s Intel Move Looks Like Performance, Not Policy

08/26/2025 Ineteconomics Analysis

Two economists who have studied Intel warn that Trump’s move to take a stake in the company amounts to flashy optics, incoherent strategy, and a creeping politicization of economic policy.
Intel, once dominant in semiconductors, has flailed amid manufacturing problems, leadership changes, and fierce global competition. And unfortunately, it matters because in a world where chips are the new oil, controlling them means controlling power -- economic, military, and geopolitical.

Trump’s push to fire Fed governor threatens central bank independence − and that isn’t good news for sound economic stewardship (or battling inflation)

08/26/2025 The Conversation USA

The fate of Lisa Cook, who is fighting attempts by President Donald Trump to remove her from the Federal Reserve’s Board of Governors, has huge implications for a keystone of good economic policy: central bank independence.

Central bank communication with non-experts: insights from a randomized field experiment

08/26/2025 European Central Bank Central banks

We would like to thank Philipp Lane, Klaus Adam, Michael Ehrmann, Christophe Kamps, Timo Reinelt, Annalisa Ferrando, Philippine Cour-Thimann, Felix Hammermann, Davide Romelli, Andreas Kapounek, and colleagues from DG Communication for for their valuable feedback on earlier versions of this paper. This paper was presented at the 2025 AEA Conference in San Francisco, and we appreciate the feedback and suggestions received from the participants.

Central bank communication with non-experts: insights from a randomized field experiment

08/26/2025 European Central Bank Central banks

Jim Chanos on Crypto, AI, and Casino Capitalism

08/26/2025 Ineteconomics Analysis

The famed short-seller reminds us that technology might advance, but we’re still a pretty predictable bunch of apes.

From fear to fluency: what our students learned when they used AI across an entire course

08/25/2025 The Conversation News & Comments

KTStock/Getty ImagesWhen artificial intelligence (AI) enters the classroom, the focus is often on the risk of plagiarism or shortcuts.

IFDP Paper: Why are Manufacturing Plants Smaller in Developing Countries? Theory and Evidence from India

08/25/2025 Federal Reserve Central banks

Anil K. Jain and Siddharth KothariPoorer countries (and poorer states within India) have a larger share of manufacturing employment in small plants. This paper presents empirical evidence and a theoretical model to show that this relationship is driven by greater demand for lower quality goods in poorer regions, which can be produced efficiently in small plants. First, using data for India, we show that richer households buy higher price goods and larger plants produce higher price products.

The macroeconomic impact of trade policy: a new identification approach

08/25/2025 European Central Bank Central banks

This paper examines the effects of trade policy shocks on the US economy using a novel identification strategy that combines narrative information on trade policy changes with stock market data. We introduce a new data set of daily trade policy statements from 2007 to 2019, allowing us to capture a comprehensive range of trade policy actions. By analyzing stock price reactions of trade-exposed and non-trade-exposed firms around these statements, we can identify unanticipated trade policy shocks.

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