Knowledge that Transforms

Central banks have a primary goal of price stability. They pursue it using tools that include the interest they pay on reserves, the size and the composition of their balance sheet, and the dividends they distribute to the fiscal authority. We describe the economic theories that justify the central bank’s ability to control inflation and discuss their relative effectiveness in light of the historical record. We present alternative approaches as consistent with each other, as opposed to conflicting ideological camps. While interest-rate setting may often be superior, having both a monetarist pillar and fiscal support is essential, and at times pegging the exchange rate or monetizing the debt is inevitable.

William Roberds of Federal Reserve Bank of Atlanta reviews “The Silver Empire: How Germany Created Its First Common Currency” by Oliver Volckart. The Econlit abstract of this book begins: “Examines the creation of Germany's first common currency, focusing on insights from recently discovered primary sources that help explain the purpose of the currency and the importance of the uneven availability of precious metals.”

Vellore Arthi of University of California, Irvine, reviews “Controlling Contagion: Epidemics and Institutions from the Black Death to Covid” by Sheilagh Ogilvie. The Econlit abstract of this book begins: “Explores the past seven centuries of history to investigate how human societies dealt with epidemic disease, highlighting the features that have made institutional frameworks better at coordinating responses to epidemics and better at devising innovations to improve societal learning.”

Ryan Bubb of University of Southern California reviews “Good Company: Economic Policy after Shareholder Primacy” by Lenore Palladino. The Econlit abstract of this book begins: “Explores how ending shareholder primacy and reorienting corporate decision-making toward productivity would work in practice, focusing on how board members, employees, managers, shareholders, customers, and the broader public would understand their rights and responsibilities if they were operating together in pursuit of economic innovation.”

Intimate partner violence (IPV) is a pervasive global issue, with approximately one in three women experiencing IPV over their lifetime.IPV prevalence is higher in low-and middle-income countries (LMICs), and costs of IPV are also considerably larger as a percentage of GDP in LMICs.We present the economic theory behind IPV and highlight some important determinants such as poverty and societal norms.We then synthesize the causal evidence on the impact of a range of policies and interventions, highlighting approaches which have been effective in reducing IPV.We identify key insights from the existing literature and outline areas where further theoretical and empirical research is needed.

A large literature at the intersection of economics and finance offers prescriptions for regulating banks to increase financial stability.This literature abstracts from the discretion that accounting standards give banks over financial reporting, creating a gap between the information assumed to be available to regulators in models of optimal regulation and the information available to regulators in reality.We bridge insights from the economics, finance, and accounting literatures to synthesize knowledge about the design and implementation of bank regulation and identify areas where more work is needed.We present a simple framework for organizing the relevant ideas, namely the externalities that motivate bank regulation, the rationales for allowing accounting discretion, and the use of discretion to circumvent regulation.Our takeaway from reviewing work in these areas is that academic studies of bank regulation and accounting discretion require a more unified approach to design optimal policy for the real world.

If racial gaps in measures of human capital like educational attainment and standardized test scores were eliminated, what would happen to racial disparities in wages, employment, and other labor market outcomes?A credible answer to this question is foundational for understanding the nature and scope of racial inequality and discrimination in the United States.This article reviews and synthesizes a literature that studies this question by estimating the extent to which controlling for measures of human capital changes Black-white gaps in labor market outcomes, and discusses various conceptual and methodological issues related to interpreting this type of exercise.I show that while accurately interpreting this exercise and its many variants requires careful thinking, the results elucidate many important and subtle aspects of racial inequality in the United States.

The empirical economics literature on taxation in developing countries has centered on the importance of third-party information for enforcement. Yet, while surely a long-run objective, leveraging such information remains out of reach in many developing countries due to largely informal economies and low state capacity. This article examines an emerging complementary literature focused on strengthening the “sinews” of state capacity: tax administration. We argue that reforms to the organizational structure, personnel management, and task management of tax authorities have potential to raise tax capacity in developing countries. We also argue that efforts to improve the state’s legitimacy—popular acceptance of its right to tax—can increase capacity and may complement investments in tax administration. Our approach bridges a long-standing divide between how scholars in public finance and political economy approach tax capacity building in developing countries.

This essay reviews seven books from the past dozen years by social scientists examining the economic impact of artificial intelligence (AI). These works offer valuable insights—AI as cheap prediction, architectural barriers to adoption, data as an economic asset, implementation challenges. However, they offer little guidance when it comes to the transformative scenarios considered plausible by many AI researchers. Economists have made great progress in explaining how to use AI within existing production functions, who benefits, and why; what remains needed is rigorous advice to policymakers concerned about rapid increases in labor churn, scientific development, labor–capital shifts, or existential risk.