Climate Inflation is Coming. How Should Central Banks Respond?

The impacts of climate change are visible everywhere — wildfires in California, preseason hurricanes in the Caribbean, insufficient water in the Panama Canal, populations on the move everywhere from North Africa to Central America. Inflationary shocks are another looming worry. Food prices will become increasingly volatile, while property insurance rates will escalate — or insurance simply won’t be available. Labor costs will rise as employers spend to shield workers from hotter weather or raise wages where workers balk at heat exposure.

It all points not only to more inflation, but also to greater variation and less predictability across sectors and regions. In fact, that’s already happening. The figure below uses data from the Atlanta Fed to divide prices into half that are “sticky” in the sense that they rarely change and half that are “flexible,” meaning they go up or down with every bump to supply or demand. Since the late 1990s, the volatility of flexible prices has exceeded that of the “great inflation” of the 1970s. Even sticky prices are showing some ominous wiggles.

In the years ahead, more volatile inflation will make it harder for the world’s central banks, America’s own Federal Reserve Bank included, to meet their commitments to stabilize prices. Will they be up to the job? Not without some changes in strategy.

Good data on good government: Reformers should take note as political philosophy meets statistics

Good government has been a focus of political philosophers for centuries, but times change. Today’s thinkers, unlike Plato or Ibn Khaldun, can draw on abundant data to test and refine their theories on the merits and drawbacks of various regimes. And data is not just for theorists. Good data can provide would-be reformers with practical insights in their day-to-day efforts to make government more effective and strengthen democracy. A profusion of indexes compete to measure quality of government, state capacity, state fragility, liberal democracy, electoral democracy, varieties of democracy, and more. Which one is the best? Or are they all so alike that the choice doesn’t matter? 

But where to start? This paper offers a map through the thicket of governance data. The first section deals with some key terms and concepts. The second develops a pair of benchmark indexes that are closely aligned with the theoretical categories of state capacity and liberal democracy. The third examines the similarities and differences among a sample of widely used quality-of-government measures, and their implications for the relationship between liberal democracy and state capacity. The fourth section looks at what we can learn by looking beyond statistical regularities to specific country outliers. Finally, the conclusion takes up the question of how best to integrate theoretical, practical, and quantitative approaches to the study of good government.