Inflation Episodes Research Articles

International Historical Evidence on Money Growth and Inflation: The Role of High Inflation Episodes

Abstract How long is the long run in the relationship between money growth and inflation? How important are high inflation episodes for the unit slope finding in the quantity theory of money? To answer these questions, we study the relationship between excess money growth and inflation over time and across frequencies using annual data from 1870 to 2013 for 16 developed countries. Wavelet-based exploratory analysis shows the existence of a close stable relationship between excess money growth and inflation only over long time horizons, i.e. periods greater than 16–24 years, with money growth mostly leading. When we investigate the sensitivity of the unit slope finding to inflation episodes using a “time-frequency-based” panel data approach, we find that low-frequency regression coefficients estimated over variable-length subsamples are largely affected by high inflation episodes occurring in the 1910s, the 1940s, and the 1970s. Taken together, our results suggest that inflationary upsurges affect regression coefficients, but not the closeness of the long-run relationship. This reconciles the validity of the quantity theory of money with the current disinterest of monetary policymaking in money growth.

Aseismic strain episodes at Campi Flegrei Caldera, Italy

Abstract. Since 2004 a research project has been developed to monitor subsurface deformation of Italian volcanoes using borehole strainmeters and long-baseline tiltmeters. Six Sacks-Evertson dilatometers were installed around Campi Flegrei caldera and Vesuvius during 2004–2005 (Scarpa et al., 2007), and in 2008 these instruments were supplemented by two arrays of 28–280 m long water-tube tiltmeters in underground tunnels. Relevant strainmeter and tiltmeter data have been collected and analysed from the instruments installed near Campi Flegrei caldera during the recent unrest episodes. In the period 2004–2005 strain, tilt and GPS data from Campi Flegrei indicate the onset of surface deformation that accompanied a low rate of vertical displacement that continued to 2006, corresponding to an increase of CO2 emission. This strain episode preceded caldera microseismic activity by a few months, as was observed also during a significant inflation episode in 1982. Other transient strain episodes occurred in October 2006, which were accompanied by a swarm of VT (Volcano-Tectonic) and LP (Long Period) events, in 2009, at the time of renewed gas emission activity at Solfatara, and again in March 2010, several minutes before a seismic swarm. The time scale of these transient strain events ranges from some hours to several days, putting tight constraints on the origin of ground uplifts at Campi Flegrei. Their location is compatible with a source inferred from long term deformation signals, located about 4 km beneath Pozzuoli. A proposed mechanism for these aseismic strain episodes is that they are associated with magma growth in reservoirs with occasional pressure relief associated with the leakage of gas.

Investors Can Temper Their Inflation Fears: Post-COVID Inflation is Unlikely to Resemble the Great Inflation of 1968 to 1982

On August 11, 2021, the U.S. Bureau of Labor Statistics reported a 5.4% per year increase in the CPI for the third consecutive month, intensifying the ongoing debate about whether high inflation will prove temporary or more lasting. This paper seeks to inform this debate by evaluating the current conditions contributing to the recent uptick in inflation and comparing them to conditions that caused similar episodes of high inflation in the past. The paper concludes that inflationary pressures are likely to be temporary, perhaps resembling the two-year period that followed World War I and the Great Influenza. It appears highly unlikely, however, that the United States is on the brink of another Great Inflation, which lasted from 1968 to 1982. The primary reason is that the Federal Reserve of today is much less likely to suffer from the philosophical biases, knowledge gaps, and political pressures that allowed the Great Inflation to occur. If the conclusions in this paper are correct, they may prove valuable to investors. Should elevated levels of inflation prove temporary, over-reactions may lead to decisions that impair an investor's long-term objectives rather than foster their achievement.

Panel logit regression analysis of the effects of corruption on inflation pattern in the Economic Community of West African states

It is widely believed that increase in money supply increases inflation rates in the long run. Dissenting evidences have later emerged to show that the inflation-money growth link has weakened over time. This study provides a political interpretation of inflation rates dynamics by investigating corruption as a potential risk factor associated with high inflation in the Economic Community of West African States (ECOWAS) using panel logit model. All 15 ECOWAS members were selected and studied between 1995 and 2019. Estimates revealed that, in the long run, ECOWAS inflation was significantly determined by past inflation shocks, level of corruption, real GDP and exchange rates; the link between inflation and money supply growth had indeed weakened over time. In particular, results showed that, other things given, a unit increase in the level of corruption increased the risk of high inflation by 82.6%. Results also indicated that seigniorage was not enough to explain the link between inflation and corruption, suggesting that some other channels exist through which corruption affects inflation. In addition, taking 0.5 as the benchmark for forecast probabilities, the logit model reconstructed all the high inflation episodes experienced in ECOWAS in spite of the outlying observations of Liberia and Guinea. The study therefore concludes that other things given, the more corrupt ECOWAS members are, the higher the likelihood to experience high inflation.

Bubbles on Altcoins: Rush versus Manipulation

The aim of this research is to explore the bubble effects on different crypto-currencies. Bubbles are generated by investors’ urge to step-in a promising market and by price pumping trades. The main goal of the paper is to assess the presence of bubble effects in this market with customized tests able to detect the timing of various bubbles. We analyze the evolution of a representative sample crypto-currencies over time encompassing both high and low liquidity coins. The results show that several crypto-currencies prices had episodes of rapid inflation in 2017 related to the Bitcoin bubble and a few emerging coins saw their prices pumped by speculative actions.

Active deformation in the San Salvador extensional stepover, El Salvador from an analysis of the April–May 2017 earthquake sequence and GPS data

Modern and historic seismic observations indicate that earthquake swarms, often with similar characteristics, have occurred within a few tens of kilometers of the San Salvador volcano, which poses a major active hazard to the San Salvador metropolitan area. Here, we evaluate whether the April–May 2017 earthquake sequence near the San Salvador volcanic complex was tectonic or volcanic and more broadly consider the implications of up-to-date GPS observations and seismic data for earthquake and volcano hazards in the San Salvador metropolitan area. Based on magnitudes calculated for 532 earthquakes in the April–May sequence, we report a Gutenberg-Richter law b-value of 0.95 ± 0.12, consistent with b values for tectonic earthquakes, and based on temporal distribution of aftershocks we report an Omori law p-value of 1.5 ± 0.1. Focal mechanisms estimated for the mainshock and 14 largest foreshocks and aftershocks are all strike-slip with NNE-striking, left-lateral-slip and ESE-striking right-lateral-slip nodal planes. The best located foreshocks and aftershocks unequivocally indicate that the earthquake sequence accommodated left-lateral slip along a NNE-striking fault, compatible with the local tectonic setting. An absence of seismic and GPS evidence for any unrest of the San Salvador volcano during the years after the 2017 earthquake sequence is consistent with its tectonic origin. Continuous GPS measurements at a site 5 km south of the volcano reveal a previously unknown inflationary episode from mid-2010 to mid-2012, but no evidence for volcanic unrest in 2017 or later. Updated GPS velocities indicate that ~4–5 mm yr−1 of E-W-dominated stretching occurs between the San Salvador volcano and Ilopango caldera. That the 2017 earthquakes and Mw = 5.7 1986 San Salvador earthquake both accommodated left-lateral strike-slip along NNE-striking faults suggests that the GPS-measured E-W stretching is accommodated by bookshelf faulting between blocks that rotate clockwise in response to 10 ± 1.4 mm yr−1 (95%) of dextral motion across the volcanic arc at the location of San Salvador.

Fiscal Reforms and Deficits in Tanzania: An Exploratory Review

Abstract This study provides an exploratory review of the trends, policy reforms, and determinants of fiscal deficits in Tanzania during the period 1980-2017. During this period, the country undertook various fiscal policy reforms intended to improve revenue mobilization and expenditure efficiency. The most significant of these reforms included the introduction of the semi-autonomous revenue authority and an extensive public financial management reform program. While the post-independence period was characterized by large fiscal deficits, recent trends show that fiscal deficits in Tanzania have been contained, even as some public investment management challenges exist. The review of trends and literature suggests that fiscal deficits are linked to the structure of the economy, low levels of development, donor aid and grants, as well as the overall macroeconomic environment. In particular, fiscal deficits are associated with growth cycles, inflationary episodes, and external sector developments.

Inflation News and the Poor: The Role of Ethnic Heterogeneity

A sudden and unexpected increase in prices may erode real incomes of both the rich and the poor. However, the poor are often more unprotected against sudden inflation spells. I show that the notion that the poor are hurt more than the rich by unexpected price increases crucially depends on the ethnic composition of populations. While the poor lose income shares during unexpected inflation episodes in ethnically fractionalized countries, they gain income shares relative to the rich during unexpected inflation spells in more homogenous populations. To document this new empirical regularity, I construct a novel data set of inflation news shocks based on revisions to inflation forecasts in the IMFs World Economic Outlook for the period 1991-2016 across 189 countries. The results suggests that social insurance for the poor against unanticipated inflation is weaker in ethnically heterogeneous populations than in more homogenous populations.

Time-Varying Trend Models for Forecasting Inflation in Australia

We investigate whether a class of trend models with various error term structures can improve upon the forecast performance of commonly used time series models when forecasting CPI inflation in Australia. The main result is that trend models tend to provide more accurate point and density forecasts compared to conventional autoregressive and Phillips curve models. The best short-term forecasts come from a trend model with stochastic volatility in the transitory component, while medium to long-run forecasts are better made by specifying a moving average component. We also find that trend models can capture various dynamics in periods of significance which conventional models cannot. This includes the dramatic reduction in inflation when the RBA adopted inflation targeting, the one-off 10 per cent Goods and Services Tax inflationary episode in 2000, and the gradual decline in inflation since 2014.

Magma accumulation beneath Santorini volcano, Greece, from P-wave tomography

AbstractDespite multidisciplinary evidence for crustal magma accumulation below Santorini volcano, Greece, the structure and melt content of the shallow magmatic system remain poorly constrained. We use three-dimensional (3-D) velocity models from tomographic inversions of active-source seismic P-wave travel times to identify a pronounced low-velocity anomaly (–21%) from 2.8 km to 5 km depth localized below the northern caldera basin. This anomaly is consistent with depth estimates of pre-eruptive storage and a recent inflation episode, supporting the interpretation of a shallow magma body that causes seismic attenuation and ray bending. A suite of synthetic tests shows that the geometry is well recovered while a range of melt contents (4%–13% to fully molten) are allowable. A thin mush region (2%–7% to 3%–10% melt) extends from the main magma body toward the northeast, observed as low velocities confined by tectono-magmatic lineaments. This anomaly terminates northwest of Kolumbo; little to no melt underlies the seamount from 3 to 5 km depth. These structural constraints suggest that crustal extension and edifice loads control the geometry of magma accumulation and emphasize that the shallow crust remains conducive to melt storage shortly after a caldera-forming eruption.

High Rates of Inflation During a Noneruptive Episode of Seismic Unrest at Semisopochnoi Volcano, Alaska in 2014–2015

AbstractMagma intrusion rate is a key parameter in eruption triggering but is poorly quantified in existing geodetic studies. Here we examine two episodes of rapid inflation in this context. Two noneruptive microseismic swarms were recorded at Semisopochnoi Volcano, Alaska in 2014–2015. We use differential SAR techniques and TerraSAR‐X images to document surface deformation from 2011 to 2015, which comprises island‐wide radial inflation totaling ~25 cm (+/−1 cm) line of sight displacement in 2014–2015. Multiple source geometries are tested in an inversion of the deformation data, and InSAR data are best fit by a spheroid trending to the northeast and plunging to the southeast, with a major axis of ~4 km and minor axes of ~1 km, directly under the central caldera of Semisopochnoi. In 2014, a modeled influx of 0.043 km3 of magma caused line of sight displacement of ~17 cm. This magma was stored at a depth of ~8 km, until 2015 when 0.029 km3 was added. Along with the definition of inflation source parameters, the recorded seismic events are relocated using differential travel times. These relocated events outline a linear aseismic area within a larger zone of shallow (<10 km) seismicity. This aseismic region aligns with the centroid of the deformation model. Based on these geodetic and seismic models, the plumbing system at Semisopochnoi is interpreted as a spheroidal magma storage zone at a depth of ˜8 km below a linear feature of partial melt. The observed deformation and seismicity appear to result from rapid injection into this main storage region.

Bridging the Gap From Caldera Unrest to Resurgence

Calderas often inflate up to a few metres for weeks to years, which is an evidence of short-term unrest. Some calderas also show a larger uplift (up to a thousand metres), achieved on the longer-term (hundreds to thousands of years), testified by a resurgent dome or block. How the short-term inflation relates to long-term resurgence is still poorly understood, even though established views consider the two processes distinct. This study exploits the longer deformation time series now available for several calderas, as well as the better understanding of magmatic processes and their evolution, to try to bridge the gap between these two scales of uplift. Available data challenge established views, suggesting that resurgence, rather than being produced by constant or continuous uplift, is the net cumulated result of tens to thousands distinct episodes of inflation, even interrupted by deflation episodes, as observed on short-term unrest. These inflation episodes are ascribed to distinct pulses of shallow magma emplacement, with most of the magma remaining intruded, especially in felsic calderas. This supports an incremental growth of magmatic systems, consistently with what observed below resurgent calderas and what inferred for plutons. Comparing the uplift (as expression of the intrusive record) and eruptive histories or resurgent calderas opens new exciting research paths to understand the causal relationships between intruded and erupted magma at a given caldera, thus enhancing its long-term eruptive forecast.

Money Growth and Inflation: International Historical Evidence on High Inflation Episodes for Developed Countries

Money Growth and Inflation: International Historical Evidence on High Inflation Episodes for Developed Countries

The transition probabilities for inflation episodes in Ghana

PurposeFollowing the reforms in monetary policy and shift in fiscal policies, it is logical to presume that these reforms may cause a significant structural change in the dynamic processes of inflation and hence affect the nature of inflation persistence. The purpose of this paper is to examine the persistence nature of the different inflation episodes while controlling for the effects of demand- and supply-side factors, which are modeled as regime-dependent.Design/methodology/approachThis paper used the Markov-switching dynamic regression and annual time series data.FindingsThe results showed that high inflation regime is more persistent than low inflation regime, with a respective average duration of an escape of 3.5 and 2.57 years, which suggests that price stability achievements are less sustainable. In both regimes, demand- and supply-side factors play significant roles in driving inflation, but the effect of the latter dominates. Thus, on the argument of whether inflation in Ghana is structural or monetary, the results support the former. The roles of both structural and monetary factors have changed over time, but that of the former has been more significant and important in Ghana.Originality/valueThis study provides the first empirical attempt, in the case of Ghana, that examines the persistence nature of different inflation regimes, while modeling the effects of supply and demand factors as regime dependent. In the modeling sense, the authors also contribute by ruling out the assumption that the researcher knows the processes responsible for each observation at each point in time.

Gold Investment in Malaysia: Refuge from Stock Market Turmoil or Inflation-Protector?

This research aims to analyse the roles of gold as a hedge or safe haven against stock and inflation, simultaneously. The standard TGARCH and quantile techniques in the TGARCH models are proposed. Based on the standard TGARCH model, this study demonstrates that gold generally displays little evidence of a strong hedge property against the stock market and inflation in the full sample (2001-2014). Nevertheless, this study reports some strong hedging roles for local gold (but not international gold) in the shorter sample (2010-2014) during the period during which particular attention was given to the European debt crisis. For the quantile relations, although we can detect some evidence of a strong safe haven in some quantiles, gold, at best, tends to be a weak safe haven during extreme movements in stock return, for both periods. Concerning gold-inflation relationships, this study reveals that gold, at best, is a less viable haven instrument. This study also reveals that various types of gold are essential to determine the hedge and safe haven effects, while gold in various weights only plays a minor role. In conclusion, these results demonstrate that gold only plays a minor role during stock market slumps and inflationary episodes in the context of Malaysia.

Renewed Posteruptive Uplift Following the 2011–2012 Rhyolitic Eruption of Cordón Caulle (Southern Andes, Chile): Evidence for Transient Episodes of Magma Reservoir Recharge During 2012–2018

AbstractThe VEI 4 rhyolitic eruption of Cordón Caulle volcano in 2011–2012 was immediately followed by ∼0.77 m of exponentially decaying uplift during 2012–2015. In this study, we present evidence of additional transient pulses of inflation with interferometric synthetic aperture radar (InSAR) time series during 2016–2018. We also assess whether the 2012–2015 uplift can be explained by viscoelastic relaxation or not. InSAR detected ∼12 cm of uplift during 2016–2017 and ∼5 cm during 2017–2018. The three inflation episodes have very similar spatial scales and can be modeled with the same inflating sill (z ∼ 6 km), but their time evolution is significantly different. Numerical models of a pressurized reservoir surrounded by a viscoelastic shell do not have a better fit than a magma injection model to the 2012–2015 InSAR time series, indicating that magma injection is the most likely mechanism to explain this uplift signal. The spatial similarities of the three pulses suggest that they are produced by episodic magma injection. These magma injection pulses provide the heat to remobilize the crystal mush beneath the volcano on timescales of a few months, but the end of the uplift is not predicted by existing models. None of these uplift pulses were related to abnormal seismicity, and we speculate that they are mostly aseismic because they caused stresses of lower magnitude than the coeruptive stresses. The meter scale displacement observed at Cordón Caulle between 2007 and 2018 suggests that the volcano undergoes episodic cycles of inflation like those observed in silicic calderas.

Is the Bitcoin Rush Over?

The aim of this research is to explore the econometric features of Bitcoin-USD rates. Various non-Gaussian models are fitted to daily returns in order to underline the unique characteristics of Bitcoin when compared to other more traditional currencies. Market efficiency hypothesis is tested further, and the main reasons for breaches in efficiency are discussed. The main goal of the paper is to assess the presence of bubble effects in this market with customized tests able to detect the timing of various bubbles. The results show that the Bitcoin prices had two episodes of rapid inflation in 2014 and 2017.

MeV dark matter complementarity and the dark photon portal

We discuss the phenomenology of an MeV-scale Dirac fermion coupled to the Standard Model through a dark photon with kinetic mixing with the electromagnetic field. We compute the dark matter relic density and explore the interplay of direct detection and accelerator searches for dark photons. We show that precise measurements of the temperature and polarization power spectra of the Cosmic Microwave Background Radiation lead to stringent constraints, leaving a small window for the thermal production of this MeV dark matter candidate. The forthcoming MeV gamma-ray telescope e-ASTROGAM will offer important and complementary opportunities to discover dark matter particles with masses below ∼ 10 MeV . Lastly, we discuss how a late-time inflation episode and freeze-in production could conspire to yield the correct relic density while being consistent with existing and future constraints.

How should Central Banks Respond to Non-neutral Inflation Expectations?

This paper investigates the net real inflation effect on output in ten countries, comprising both advanced and developing countries. An indicator is introduced to compute the net inflation effect on output (NIEO) based on the difference between two concepts of core inflation, where both are computed using the decomposition of VAR residuals. We find that for all countries, when inflation is increasing the NIEO is significantly positive and is negative during periods of decreasing inflation. Typically, countries which follow anti-inflationary policies if the NIEO is of small magnitude suffer relatively minimal damage in output, whereas if the same policies are undertaken when the NIEO is large the damaging effects on output could be much greater. This suggests that the NIEO could be a useful indicator of the likely effects of policy, especially for countries which have frequent episodes of high inflation, and in those countries which employ inflation-targeting policy, as the timing of monetary policy actions could be optimized to take account of this real effect of inflation.

Desigualdad, inflación, ciclos y crisis en Chile

En este artículo se analizan los efectos de fluctuaciones macroeconómicas, así como episodios de inestabilidad financiera e inflacionaria, sobre indicadores de desigualdad en Chile para el período 1960-2014. La relación entre los episodios de crisis y fluctuaciones sobre los niveles de desigualdad se estima a partir de un estudio de eventos y de estimaciones econométricas, donde indicadores de desigualdad se relacionan con distintas variables macroeconómicas y de desempeño educacional. Las principales conclusiones son que, las crisis bancarias e inflacionarias, así como períodos de contracción severa del ciclo, tienden a aumentar los niveles de desigualdad en Chile.