Historical Inflation Research Articles

Cross-Country Analysis of Inflation Experiences and Homeownership: A Qualitative Review

This qualitative literature review examines the relationship between inflation experiences and homeownership across countries. Drawing on a synthesis of existing research, the review explores how historical inflation contexts influence individuals' decisions to invest in real estate. Findings indicate that periods of high inflation often motivate individuals to view homeownership as a hedge against inflationary pressures, particularly in economies with volatile economic conditions. Institutional factors, such as mortgage market structures and housing policies, play a crucial role in shaping this relationship, influencing overall homeownership rates across different regions. Immigrant populations bring unique perspectives, as their housing decisions in host countries are influenced by inflation experiences in their countries of origin. The review highlights methodological diversity and calls for more longitudinal and cross-country studies to enhance the robustness and generalizability of findings. Addressing these dynamics can provide insights into effective policy interventions aimed at promoting sustainable housing markets globally.

Rent or Buy? Inflation Experiences and Homeownership within and across Countries

ABSTRACTWe show that past inflation experiences strongly predict homeownership within and across countries. First, we collect novel survey data, which reveal inflation protection to be a key motivation for homeownership, especially after high inflation experiences. Second, using household data from 22 European countries, we find that higher exposure to historical inflation predicts higher homeownership rates. We estimate similar associations among immigrants to the United States who experienced different past inflation in their home countries but face the same U.S. housing market. Consistent with the experience effects model, the relationship is strongest in countries with predominantly fixed‐rate mortgages.

Fear of the Dark: Inflation Experiences and Subjective Well-being

In this paper, we estimate the impact of past inflation experiences (à la Malmendier and Wachter, 2023) on people's current level of utility as revealed by their subjective well-being. Combining detailed EU-level Household Finance and Consumption Survey microdata and lifetime experienced inflation, we provide novel evidence that individual households who have experienced higher historical inflation report significantly lower current life satisfaction scores, even after controlling for a large set of socio-economic characteristics and household wealth and income levels. However, for the old EU countries sample, individual households appear to derive higher subjective well-being from modest inflation up to around 2.6%.

PROJECTION OF THE INFLATION RATE IN PANGKALPINANG CITY USING THE AUTOREGRESSIVE MOVING AVERAGE (ARMA)

Inflation is one of the variables in the macro economy that can affect people's welfare and is defined as a complex phenomenon due to general and continuous price increases. This study aims to project the inflation rate in Pangkalpinang City, Bangka Belitung Islands Province in the period of October, November, and December of 2022. The historical inflation data used in this study is presented in a monthly period from January 2004 ends in October 2022 and January 2023 obtained from the publication of the Central Statistics Agency (BPS) of the Bangka Belitung Islands Province. The process projection is done using the Autoregressive Integrated Moving Average (ARIMA) model after passing the model fitting process first. The projection results obtained using historical inflation data show that the ARIMA model that is suitable for the projection process is the ARMA model (4,4) with the best RMSE value of 1.21 and MAE of 0.89. Through the results of this projection, it is also obtained that the percentage value of the inflation rate in Pangkalpinang City has decreased by 0.03% in the period of October 2022 and has increased in the period of November by 0.05%, then the inflation rate in Pangkalpinang City will again decline in the period of December 2022. by 0.3% and an increase of 0.33% in January 2023.

Modelling and Forecasting Inflation Rates in Kenya Using ARIMA Model

This research aimed to develop an ARIMA(1,0,11) model for forecasting inflation rates in Kenya. The research utilized historical inflation data from January 2005 to August 2022 to develop the model and evaluated its performance on a test set spanning from September 2022 to August 2023. The results demonstrated that the ARIMA model provided accurate forecasts, with low forecast errors in terms of MSE, RMSE, MAE, and MAPE. These forecasts have practical utility for various stakeholders, including policymakers, businesses, and financial institutions, as they can use the information to inform pricing strategies, interest rate policies, and other economic decisions. Additionally, the study highlighted the importance of data quality, continuous monitoring of economic factors, and periodic model refinement to ensure the effectiveness of inflation forecasting in a dynamic economic environment.

STOP WARS

STOP WARS

Empirical determination of sustainable withdrawal rates considering historical yields and inflation rates in Germany

On account of the current low interest rate phase, which is most likely to continue in the coming years, the average yields to be achieved in the bond, time deposit and savings product sectors are declining, so that risk-averse investors in particular have few opportunities to generate return-oriented retirement provisions.This scientific article analyzes the level of a possible safe withdrawal rate for diversified pension portfolios, considering historical returns and inflation rates. Consequently, this article provides immediate practical added value for a possible retirement provision.The evaluation is based on the consideration of historical returns of the stock and bond market in Germany. To determine a safe withdrawal rate, the development of portfolios with different compositions and inflation-adjusted withdrawal rates are simulated over periods of 15 to 35 years. In this simulation, the risky part of the portfolio is represented by German equities, the low risk part by German government bonds.To sum up, the empirical results show a maximum safe withdrawal rate of 4%. The underlying portfolio is composed of 50% equities and 50% government bonds. Particularly due to the outlined demographic change in Germany as well as the ongoing low-interest phase, the empirical study can provide significant theoretical and practical insights.

The Best Strategies for Inflationary Times

Over the past three decades, a sustained surge in inflation has been absent in developed markets. As a result, investors face the challenge of having limited experience and no recent data to guide the repositioning of their portfolios in the face of heightened inflation risk. In this article, the authors provide some insight by analyzing both passive and active strategies across a variety of asset classes for the United States, the United Kingdom, and Japan over the past 95 years. Unexpected inflation is bad news for traditional assets, such as bonds and equities, with local inflation having the greatest effect. Commodities have positive returns during inflation surges, but there is considerable variation within the commodity complex. Among the active strategies, the authors find that trend-following provides the most reliable protection during important inflation shocks. Active equity factor strategies also provide some degree of hedging ability. The authors also provide an analysis of alternative asset classes such as fine art and discuss the economic rationale for including cryptocurrencies as part of a strategy to protect against inflation. <b>TOPICS:</b>Developed markets, financial crises and financial market history, risk management, portfolio management/multi-asset allocation <b>Key Findings</b> ▪ The authors examine a range of passive and active strategies using a century of data in the United States, the United Kingdom, and Japan and find that passive equity and fixed-income strategies fare poorly during inflation surges. ▪ Commodities provide historical inflation protection, as do collectibles such as wine and fine art. ▪ Active strategies such as trend-following fare well during historical inflation surges, and equity factor strategies such as quality provide some protection.

Priming in inflation expectations surveys

Since the global financial crisis of 2007/2008, there has been increased attention on inflation expectations and the use of central bank communication as a tool to achieve a central bank’s objective for inflation. However, much of this research analyses the survey data with limited consideration of the survey design that generated the data, or the differences across surveys and countries. In this research note, we focus on one element of South Africa’s Bureau of Economic Research household inflation expectation survey question – the inclusion of a historical inflation number in the survey question. Using a dataset created by Pienaar (2018), we are able to evaluate the impact of its inclusion on the data created. We find that the inclusion of a historical inflation number into the survey question, distorts survey responses, particularly a group considered to be relatively ‘less rational’. We do not investigate whether this bias is caused by anchoring (Tversky & Kahneman (1974), learning (Cavallo, Cruces, & Perez-Truglia, 2017), or any other theory, but we do argue that the observed bias should raise concern about the interpretation of surveys, where the question includes any form of extra information (priming). The impact not only distorts the level of the response, it also leads to changes in the distribution.

Editorial for Applied Econometrics

This Editorial evaluates 14 invaluable and interesting articles in the Special Issue “Applied Econometrics” for the Journal of Risk and Financial Management (JRFM). The topics covered include recovering historical inflation data from postage stamps prices, FHA loans in foreclosure proceedings through distinguishing sources of interdependence in competing risks, information in earnings forecasts, nonlinear time series modeling, a systemic approach to management control through determining factors, economic freedom and FDI versus economic growth, efficient cash use of the Taiwan dollar, financial health prediction in companies from post-Communist countries, influence of misery index on U.S. Presidential political elections, multivariate student versus Gaussian regression models in finance, financial derivatives markets and economic development, income inequality and economic growth in middle-income countries, abnormal returns, mis-measured risk, network effects, and risk spillovers in stock returns.

THE FORMATION OF CONSUMER INFLATION EXPECTATIONS: NEW EVIDENCE FROM JAPAN'S DEFLATION EXPERIENCE

AbstractUsing a new data set, we investigate the relationship between the inflation experience and expectations of households in Japan, focusing on the post‐1995 deflationary era. Our first finding is that inflation expectations increase with age. Second, we find that measured inflation rates also increase with age, although age and inflation expectations continue to exhibit a positive correlation even after controlling for the household‐level inflation rate. Analysis suggests that the correlation between age and inflation expectations is driven largely by the correlation between cohort and inflation expectations, which we interpret to represent the effect of historical inflation experience on inflation expectations.

Fair market value of bitcoin: halving effect

The purpose of this article is to analyze the effect that halving has on the fair market value of bitcoins. The main hypothesis of the study is that the decline in the cost of miners’ remuneration for mining is a significant factor that affects the price of cryptocurrencies. The article examines the factors that regulate the issuing process. The significance of a limited supply of bitcoin is detailed in the article, as well as the mechanism for the implementation of the issue of new bitcoins. The study compares the historical inflation data of the US dollar and the projected data on the inflation of bitcoin. The article analyzes the main technical element of cryptocurrency – halving – when the miner’s reward is halved. This analysis includes the mathematical methods of statistical data processing. Research results show that reducing remuneration by half every four years leads to an increased market value of the cryptocurrency. This relationship is clearly illustrated by the Kendall rank correlation method. The results of the study can have a significant impact on the fundamental assessment of bitcoin and can also enable investors to assess any of the existing and operating cryptocurrencies according to this method.

Precificação de ativos: análise do fator book-to-market após o deemed cost

A determinação do custo de capital próprio é um assunto extensivamente pesquisado e discutido em finanças, possibilitando o desenvolvimento de novos estudos correlatos. No mercado brasileiro, Noda, Martelanc e Kayo (2016) obtiveram resultados discordantes dos encontrados por Fama e French (1995, 1996), indicando que tais divergências podem ser explicadas pela elevada taxa de inflação. Assim, esta pesquisa busca analisar se após o deemed cost - como meio de dirimir os efeitos da inflação - os retornos obtidos pelas carteiras construídas com base no índice book-to-market (PL/VM) são estatisticamente diferentes dos observados pelo Capital Asset Pricing Model (CAPM) e pelo indicador lucro/preço (L/P). Por meio dos resultados foi possível concluir que o índice L/P não se apresentou como mais efetivo para reconhecer ações “baratas” ou “de valor”, frente ao índice book-to-market. Estes resultados são divergentes dos encontrados por Noda et al. (2016) e coincidem com os resultados encontrados por Fama e French (1995, 1996), evidenciando que o modelo tradicional de três fatores explica os retornos das carteiras construídas com base no book-to-market. Isso posto, pode-se indicar que a alta inflação histórica do mercado brasileiro, em específico para as firmas cujos ativos são mais antigos, faz com que as informações contábeis das entidades sejam menos significativas. Contudo, mensurações como as realizadas pelo deemed cost podem suavizar o impacto da inflação, concedendo maior representatividade para as informações contábeis, evidenciado assim, que práticas como o custo atribuído exercem influência nas expectativas dos usuários, conforme também verificado por Demaria e Dufour (2007) e Cerqueira, Rezende, Dalmácio e Silva (2013).

An Economic Analysis on Historic Inflation Rate in India

India's inflationary experience was a varied basket. There were some years the annual inflation rate reached a maximum of 40%, while other years were negative. Wholesale price index, differs in a wide range as the lowest value of -12.5% for the year 1952-53 and the highest amount of 38.3% for the year 1943-44. The highest value is due to the end of the world war-II. The years of high, inflation is mainly the impact of War, low agricultural production due to drought and oil price hike up in foreign countries. The inflation rate was below 6% for 38 years and above 6% for 40 years out of 78 years beginning from 1939-40 to 2016-2017. Suppose, it is assumed that India's bearable rate of Inflation is equal to or below 6%, then, India appears to be worst in controlling inflation.&#x0D; On the other hand, the rate of inflation above 6% to 15% was for 31years and above 15% for nine years. Therefore, many accept as accurate that India is to be an Inflation driven country. The severe economic setback in the Indian economy is inflation, which hinders the economic power of the people. Most of the people are still suffering due to increase in India. These major study aims to support the Government, and economists should generate better policies for the control the rise.

An Economic Analysis of Historic Inflation Rate in India

India's inflationary experience was a varied basket. There were some years the annual inflation rate reached at maximum 40%, while other years were negative. The inflation rate was below 6% for 38 years and above 6% for 40 years out of 78 years beginning from 1939–40 to 2016–2017. Suppose, it is assumed that the bearable rate of inflation is equal to or below 6%, then, India appears to be worst in controlling inflation. On the other hand, the rate of inflation above 6% to 15% was for 31 years and above 15% for 9 years. Therefore, many accept as true that India is to be an inflation driven country. The very dangerous economical setback in the Indian economy is inflation, which hinders economic power of the people. Most of the people are still suffering due to inflation in India. These study major aims support the Government and economists should generate better policies for the control the inflation.

Heuristics versus econometrics as a basis for forecasting international inflation differentials

PurposeThis study aims to address the issue of prediction of inflation differences for an economy that considers either fixing its exchange rate or joining a currency union. In this setting, individual countries have limited control over their inflation, and anticipating the possible course of domestic inflation relative to inflation abroad becomes an important input in policy-making. In this context, the author compares simple forecast heuristics and econometric modeling.Design/methodology/approachThe study compares two basically different approaches. The first approach of forecasting consists of simple heuristics. Various heuristics are considered that differ with respect to the economic reasoning that goes into quantifying the forecast rules. The simplest such forecasting heuristic suggests that the average over all available observations of inflation differentials should be taken as a predictor for the future. Bringing more economic insight to bear suggests a further heuristic according to which historical inflation differentials should be adjusted for changes in the nominal exchange rate. A further variant of this approach suggests that a forecast should exclusively rely on data from earlier times under a pegged exchange rate. A fundamentally different approach to prediction builds on dynamic econometric models estimated by using all available historical data independent of the currency regime.FindingsThe author studies three small member countries of the Eurozone, i.e. Finland, Luxembourg and Portugal. For the evaluation of the various forecasting strategies, he performs out-of-sample predictions over a horizon of five years. The comparison of the four different forecasting strategies documents that the variant of the forecast heuristic that draws on data from earlier experiences under fixed exchange rates performs better than the forecast based on the estimated econometric model.Practical implicationsThe findings of this study provide helpful guidelines for countries considering either joining a currency union or fixing their exchange rate. The author shows that a simple forecasting heuristic gives sound advice for assessing the likely course of inflation.Originality/valueThis study describes how economic theory can guide the selection of historical data for assessing likely future developments. The analysis shows that using a simple heuristic based on historical analogy can lead to better forecasts than the analytically more sophisticated approach of econometric modeling.

Does History Help Predict International Inflation Differentials?

Purpose: This study addresses the issue of prediction of inflation differences for an economy that considers either fixing its exchange rate or joining a currency union. In this setting individual countries have limited control over their inflation and anticipating the possible course of domestic inflation relative to inflation abroad becomes an important input in policy making. In this context, we compare simple forecast heuristics and econometric modeling. Design/methodology/approach: We compare two basically different approaches. The first approach of forecasting consists of simple heuristics. Various heuristics are considered that differ with respect to the economic reasoning that goes into quantifying the forecast rules. The simplest such forecasting heuristic suggests that the average over all available observations of inflation differentials should be taken as a predictor for the future. Bringing more economic insight to bear suggests a further heuristic according to which historical inflation differentials should be adjusted for changes in the nominal exchange rate. A further variant of this approach suggests that a forecast should exclusively rely on data from earlier times under a pegged exchange rate. A fundamentally different approach to prediction builds on dynamic econometric models estimated by using all available historical data independent of the currency regime. Findings: We study three small member countries of the Eurozone, i.e., Finland, Luxembourg, and Portugal. For the evaluation of the various forecasting strategies we perform out-of-sample predictions over a horizon of five years. The comparison of the four different forecasting strategies documents that the variant of the forecast heuristic that draws on data from earlier experiences under fixed exchange rates performs better than the forecast based on the estimated econometric model. Practical Implications: The findings of this study provide helpful guidelines for countries considering either joining a currency union or fixing their exchange rate. We show that a simple forecasting heuristic gives sound advice for assessing the likely course of inflation. Originality: This study describes how economic theory can guide the selection of historical data for assessing likely future developments. The analysis shows that using a simple heuristic based on the historical analogy can lead to better forecasts than the analytically more sophisticated approach of econometric modeling.

Does experience with high inflation affect intertemporal decision making? Sensitivity to inflation rates in Argentine and british delay discounting choices

Delay discounting captures the way in which people devalue rewards which are not immediately available as a function of their delay until receipt. Normatively, decision makers should be sensitive to inflation rates when evaluating delayed rewards because the value of a delayed outcome is eroded by inflation. We hypothesised that participants from countries with direct experience of high inflation would be particularly sensitive to inflation rates when making intertemporal choices; i.e. they may be more likely to take into consideration the effect of inflation on future rewards. This study compares intertemporal choices of participants from countries with dramatically different histories of inflation: Argentina and Britain. Participants completed a delay discounting task under two inflation rate conditions (2% and 20%, between subjects). We found that people discounted future rewards more steeply under the 20% inflation rate condition than under the 2% condition. Participants from Argentina, the country with much higher current and historical inflation rates, discounted future rewards more steeply in both inflation rate conditions than participants from the UK. However, Argentines were not more sensitive to inflation rates than British people.

Recovering Historical Inflation Data from Postage Stamps Prices

For many developing countries, historical inflation figures are rarely available. We propose a simple method that aims to recover such figures of inflation using prices of postage stamps issued in earlier years. We illustrate our method for Suriname, where annual inflation rates are available for 1961 until 2015, and where fluctuations in inflation rates are prominent. We estimate the inflation rates for the sample 1873 to 1960. Our main finding is that high inflation periods usually last no longer than 2 or 3 years. An Exponential Generalized Autoregressive Conditional Heteroscedasticity (EGARCH) model for the recent sample and for the full sample with the recovered inflation rates shows the relevance of adding the recovered data.

Estimating the credibility of Brazilian monetary policy using a Kalman filter approach

The objective of this study is to estimate the credibility of the monetary policy followed by the Central Bank of Brazil (BCB) during the period 2006–2015. To estimate this credibility, we use the Kalman filter in three measures of inflation expectation: two collected via market survey and via consumer polling, as well as the breakeven inflation. The results provide evidence of the existence of three shifts in the perceived credibility of BCB inflation targets during the period analyzed: (i) credibility declined sharply in mid-2008, at the most critical moment of the subprime mortgage crisis; (ii) credibility was relatively stable from early 2009 through mid-2013; (iii) credibility trended downward thereafter, when the real interest rate was less than the minimum rate compatible with the inflation target. By associating the estimated credibility with macroeconomic and financial variables, we find a downward trend in credibility during recessionary periods and an inverse relationship between credibility and output gap, between credibility and variation in the BRL/USD exchange rate, and between credibility and historical inflation. In addition, we find that market survey and breakeven inflation credibility measures are important in predicting sovereign risk. Furthermore, changes in the inflation rate are important for predicting only credibility measured on consumer polling, validating the assumption that measures from consumer polls are backward-looking and formed based on consumers’ adaptive expectations.