Response Of Inflation Research Articles

Exchange Rate Pass‐Through in Asia: Assessing the Relevance of the Inflation Targeting Framework

ABSTRACTThis study aims to quantify a possible link between exchange rate pass‐through (ERPT) and inflation targeting framework (IT) while focusing on four Asian economies which have adopted IT during the period of 1990–2010 against a control group of non‐inflation targeters. By deploying a structural VAR model with non‐recursive contemporaneous restrictions imposed on covariance matrix, we identify the impulse response of domestic inflation to the shocks of exchange rate and world commodity prices. The empirical evidence suggests that ERPT is absent in Asian IT and non‐IT economies since 1990s. The adoption of IT has not led to change in ERPT for the group of IT economies compared to their own pre‐targeting period and the experiences of non‐targeters after 2000s which is accepted as the average adoption date. It has been found, however, that the movement in domestic inflation is predominantly explained by world commodity prices in the past and not by the depreciation of local currency in these economies.

Economic Growth and Inflation Responses Caused by Political Condition and Corruption Shocks in Supporting SDGs: Case Study of Asean Countries

Objective: The research objective of this study is to examine and analyze the interaction of economic growth, inflation, political condition, and corruption in ASEAN to support the achievement of SDGs in each country. Theoretical Framework: The theories used in this study are Philips' theory related to inflation and unemployment, aggregate demand theory related to inflation and output, institutional theory for political stability and corruption. Method: The method used is PVAR for the period 2010-2023. The first stage is testing and analyzing the stationary panel with the LLC test approach. The second stage is testing and analyzing the shock response of macroeconomic variables with political conditions and corruption. Results and Discussion: The estimation results show that the variables used in this study are stationary at the level level, so there is no need to conduct a cointegration test. The impulse response results show that the interaction of economic variables is responsive to the performance of political stability and corruption. Research Implications: The policy recommendations provided by this study are to maintain political stability and reduce the level of corruption. In addition, the governments of each ASEAN country need to strengthen cooperation related to law, economy, and others. This will be able to support the achievement of SDGs in each country.

Modeling Inflation Expectations in Forward-Looking Interest Rate and Money Growth Rules

We propose a novel approach that directly embeds rational expectations (RE) into a low-dimensional structural vector autoregression (SVAR) without the need for any mapping to a dynamic stochastic general equilibrium (DSGE) model. Beginning from a fully specified “consensus” structural model, we establish an instrumental variable procedure internal to the SVAR to obtain RE-consistent structural responses to identified monetary policy shocks. Our RE-SVAR framework facilitates a comparison across two alternative monetary policy indicators that accommodate long horizons in the formation of inflation expectations in the policy rule. We construct clouds of responses of inflation and economic activity to monetary policy shocks. We find large regions of puzzling responses to innovations in the federal funds rate. This suggests that indicator often requires being augmented with more information in standard VAR settings. A money growth rule characterization—with Divisia M4 as a policy indicator—exhibits comparatively larger regions of sensible responses within a low-dimensional textbook model of the economy.

Determinants of Household and Professional Forecasters’ Inflation Expectations in India

ABSTRACTThis study analyses and compares the determinants of inflation expectations among households and professional forecasters in India. To this end, we utilize quarterly survey data from the Reserve Bank of India (RBI), specifically the Inflation Expectations Survey of Households (IESH) and the Professional Forecasters’ Survey (SPF). The analysis employs a non‐recursive structural vector autoregressive (SVAR) model to explore the relationships between variables. The impulse response function and variance decomposition analysis shed light on the response of inflation expectations to macroeconomic shocks. Our findings indicate that apart from conventional macroeconomic factors like realized inflation and monetary policy, exogenous factors such as oil prices significantly shape inflation expectations. Comparing IESH and SPF, we found out that household expectations are more sensitive to shocks related to food prices, reflecting the influence of food expenses on household decision‐making. Conversely, professional forecasters’ expectations are more influenced by core inflation. Finally, we observed that inflation expectations adjust more quickly than realized inflation in response to macroeconomic shocks, suggesting a leading role. This study is novel with the contribution to the existing literature as it provides a comparative analysis of determinants of inflation expectations between households and professional forecasters in India, while also considering inflation targeting as a significant factor.

Educators' Perspectives on Grade Inflation, Motivational Grading, And Emotional Responses

Aim. This study investigates the multifaceted nature of grading within the Albanian educational system, aiming to comprehend its complexities and impact on educators. It focuses on grade inflation, motivating grading practices, and educators' emotional responses, particularly during the COVID-19 pandemic. Methods. The research addresses educators' perceptions of grade inflation, strategies for motivating grades, and emotional experiences in assigning end-of-semester grades. Quantitative analyses are utilized to gather comprehensive insights. Data collection includes surveys and interviews with educators across various educational contexts. Results. The findings reveal significant difficulties for educators in assigning partially undeserved grades and providing motivating grades. Despite these difficulties, educators express pride in their grading practices. The study highlights the emotional landscape of grading, particularly the heightened stress during the pandemic. It also assesses educators' perceptions of grade inflation and its impact on the assessment system. Conclusions. Albanian educators face grading challenges, especially with undeserved grades and grade inflation, impacting their emotions. Support, localized strategies, and policy reforms are needed to enhance the educational experience and integrity. Practical application. The insights gained from this study can inform educators, policymakers, and stakeholders, fostering a conducive environment for learning, growth, and equity. The research emphasizes the importance of localized strategies to enhance the grading experience within the Albanian educational system. Cognitive value. This comprehensive approach contributes valuable knowledge to the discourse on educational grading practices in Albania. By exploring nuanced aspects of grading, the study sets the stage for meaningful discussions and interventions, addressing the unique challenges faced by Albanian educators.

Stock Returns And Inflation In Fiji

The relationship between stock returns and inflation has important implications for monetary policy and stock market investment and has attracted growing attention from scholars over recent years. Despite this, the empirical evidence so far has been inconclusive. The main objective of this paper is to investigate the impact of inflation on stock returns in the developing stock market of Fiji. We examine the impact of inflation on stock market returns within the GARCH and EGARCH modelling framework using monthly data from 2000:02 to 2018:06 and find that inflation negatively affects stock market returns. Our results indicate the importance of ensuring price stability and suggest that stock market investment will not help hedge against inflation in Fiji. The results suggest that Fiji’s stock market is likely to react more negatively to inflation in response to countercyclical monetary policy and emphasize the significance of portfolio diversification.

Time-Varying Role of House Prices on Monetary Policy in Türkiye

The main focus of this study is examining the time-varying effects of house prices on monetary policy in Türkiye from February 2010 to November 2021. We analyse these effects using a time-varying parameter vector autoregressive model with stochastic volatility (TVP VAR-SV). The evidence indicates that responses of inflation to positive house price shocks decrease over time. The response of credit and interest rates to positive house price shocks increases after 2018. The results reveal that the responses of the Central Bank of the Republic of Türkiye (CBRT) to the changes in the housing market have changed over time.

South African inflation response to fiscal policy shocks

ABSTRACT The research employs Bayesian Vector Autoregressions with hierarchical priors to analyze the intricate economic implications of fiscal policy shocks on inflation, monetary policy, and fiscal authorities in the context of South Africa. The study explores data spanning from 1979 to 2022. Contrary to conventional economic theories, our analysis demonstrates that unexpected increases in national government expenditure led to counterintuitive initial decreases in inflation. This highlights the complexity of inflation dynamics and challenges existing paradigms. Moreover, the lagged response of inflation to changes in government revenue emphasizes the role of inflation expectations and market dynamics. Clear communication by fiscal authorities is crucial for shaping these expectations and understanding their impact on inflation.

Inflation effects of oil and gas prices in the UK: Symmetries and asymmetries

The United Kingdom is among the countries experiencing a cost-of-living crisis believed to be influenced, at least in part, by the dynamics of the international oil and gas markets. To this end, this study aims to achieve to achieve two objectives. Firstly, the dynamic association between the UK's inflation and oil and gas prices is examined. Further, the study examines whether the response of the UK's inflation to energy price dynamics is (a)symmetric. This study adopts wavelet coherency to determine the dynamic co-movement between energy prices and inflation. In addition, the dynamic simulated autoregressive distributed lag model (DS-ARDL) is used to examine the dynamic response of inflation to energy price changes. The estimation results reveal a symmetric response of inflation to gas price shocks. Further, the response of inflation to oil price shocks is asymmetric. Interestingly, the effect of gas price dynamics passes more strongly to inflation than to oil price dynamics. These findings suggest that a more diversified energy mix could help prevent substantial energy price pass-through to inflationary pressures.

The long and variable lags of monetary policy: Evidence from disaggregated price indices

We study how monetary policy affects subcomponents of the Personal Consumption Expenditures Price Index (PCEPI) using local projections. Following a monetary policy contraction, the response of aggregate PCEPI turns significantly negative after over three years. There are stark differences in the timing and magnitude of the responses across price categories, including some prices that show an initially positive response. We discuss theoretical interpretations of our findings and point to useful directions for future theoretical research. We also show how to re-aggregate our cross-sectional estimates and their standard errors, taking into account dependence between different prices using a Seemingly Unrelated Regression approach. Re-aggregation exercises show that changes in expenditure behavior have not accelerated the long-lagged response of inflation to monetary policy.

The Feasibility of Coordinating International Monetary Policy Strategies in the Context of Asymmetric Demand Shocks

In the context of the increasing interdependence of countries due to the development of international trade, a relevant question arises as to whether it is necessary to conduct independent monetary policies for each country or whether it is advisable to coordinate these policies. This question becomes a key in the debate on optimal monetary policy strategies in open economies. The aim of this study is to analyze the impact of asymmetric aggregate demand shocks on the appropriateness of monetary policy coordination in a simple stochastic model of two interacting countries. The analysis of equilibrium states of the monetary authorities’ interaction strategies under study was carried out analytically by minimizing the loss function and solving one-period static optimization problems. The equilibrium states of macroeconomics of interacting countries under coordination of monetary policy and in cases of lack of coordination (Nash and Stackelberg equilibrium) in the presence of asymmetric, serially uncorrelated demand shocks have been analyzed. It is proven that the response of inflation to asymmetric demand shocks is smaller in the case of coordinated policy than in the case of non-cooperative policy. The loss function analysis shows that the compensation of demand shocks is found to be more costly in Nash equilibrium than in the case of monetary authority coordination policy. The analysis of the monetary authorities’ interaction strategies showed that the real exchange rate plays an important role in balancing supply and demand in the two economies.

Analyzing the Impact of Monetory Policy Shocks on Output, Inflation and Exchange Rate Dynamics of Pakistan

The major objective of this study is to analyse that how monetary policy of Pakistan had impact on output, inflation and exchange rate fluctuations during Global Financial Crisis 2008-2009 in Pakistan. Quarterly data was used for this purpose. Data spans from 1990Q1 to 2022Q4. Time varying parameter – vector auto regression model (TVP-VAR) of Jouchi Nakajima (2011) has been used for analysis. Through this model we selected the time horizons such as 2008, 2009 and 2015 mainly to study the impact of monetary policy on different selected variables. Our empirical finding indicates that monetary policy shock plays an important role in the economic dynamics of Pakistan. The impulse response of inflation is negative to tight monetary policy shock (εi↑→ p), this is in accordance with the standard economic theory. In case of Pakistan, after 1990 there is declining trend in volatility of output and a considerable reduction in business cycle fluctuations. Policy rate is more volatile during 1998. After 2000 there is decline in volatility of policy rate but in 2008-09 there is rise in interest rate because of Global Financial Crises in 2007 and 2008. The response of policy rate to inflation shock is in rising trend in 2007 and 2008. The inflation is increasing as a response to positive output shocks after 12th quarter this rising trend is also evident during 2008 where the impact of output on inflation is long term.

Oil and Food Prices in Bangladesh: A Linear and Non-Linear ARDL Analysis

Fluctuations in the oil price profoundly impact many other prices in the economy, as oil is used to produce numerous goods and services. While literature is ample regarding the linear relationship between crude oil prices and food prices, academic discussion on the presence of non-linear relationships is relatively evolving. This paper strives to explore the existence of both linear and non-linear relationships between crude oil price and food price in Bangladesh by employing the autoregressive distributed lag (ARDL) model and the non-linear autoregressive distributed lag (NARDL) model, respectively. The ARDL model indicates that the crude oil price has a linear and positive impact on food price inflation in Bangladesh. The NARDL model finds no asymmetric relationship between the two variables in the long run. As a result, in the long run, the response of food price inflation in Bangladesh is the same whether oil prices increase or decrease. However, the NARDL model reveals that the change in oil prices asymmetrically impacts food price inflation only in the short run. These findings are essential for further study, and the results can be used for policymaking to ensure food security in Bangladesh.

A new perspective on the asymmetric Phillips curve: Fresh evidence from ECOWAS member countries

Abstract A growing body of scholarly research has explored the non-linearity of the Phillips curve, but empirical evidence from an African perspective, particularly within the ECOWAS sub-regional context, remains underexplored. This study aims to address this gap by offering a fresh perspective on the asymmetric Phillips curve for West African countries through a comparative country-specific analysis and a panel framework utilizing the nonlinear autoregressive distributed lag (NARDL) model for the period 1986–2020. The empirical outcomes demonstrate that the asymmetric response of inflation to both positive and negative unemployment differs across the countries of Benin, Burkina Faso, Ghana, Guinea, Cote d’Ivoire, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo. Specifically, the study finds that inflation declines when unemployment rises and surges when unemployment declines in both short- and long-term dynamics. These findings highlight that low unemployment during economic expansion leads to wage-price spirals, while high unemployment results in low inflationary pressure during economic downturns in the analyzed countries. The empirical outcomes are robust and consistent for both country-specific and panel analyses, but the extent of the inflation response to unemployment is more pronounced in the WAMZ subregion. This study provides valuable insights for policymakers regarding the formulation of sound regional monetary policy.

Responses of Inflation to Fiscal Deficit and Money Supply in Nigeria

Responses of Inflation to Fiscal Deficit and Money Supply in Nigeria

Inflation returns. Revisiting the role of external and domestic shocks with Bayesian structural VAR

Following recent exceptional events in the world economy inflation increased remarkably across most countries, reinvigorating the prevalent discussion on the sources of consumer price dynamics. We analyse this issue for the small open economy of Poland by means of the Bayesian structural VAR. The model describes the evolution of eight key macroeconomic variables and is identified with a set of zero and sign restrictions. This framework, applicable also to other small open economies, provides sound economic interpretation of three domestic and five external shocks, of which two are country-specific and the remaining three are purely global. In a robust manner we show that country-specific energy price shocks and global supply shocks mostly determine the recent inflation surge in Poland. We illustrate that inflation response to these two shocks has become markedly more persistent after the outbreak of the Covid-19 pandemic. We also demonstrate that the choice of an inadequate energy prices proxy may result in underestimating the contribution of the energy price shock to inflation, whereas accounting for recent geopolitical threats and other exogenous events does not alter our baseline findings.

Aggregate demand and inflation response to monetary policy shocks in Tunisia

We investigate the response of aggregate demand (AD) components and inflation to monetary policy (MP) shocks in the Tunisian context where studies on this issue are rare. By estimating SVAR models on historical data ending in 2021, we found that: i) The Tunisian Central Bank’s (TCB) efforts to control inflation through interest rate tightening end up significantly slowing down private investment and consumption, while inflation response is not enough to mitigate the recently exacerbated inflationary trend; ii) Such efforts are hampered, if not outweighed, by the “pass-through” effect associated with exchange-rate continued depreciation; iii) The interest rate is Granger-caused by the exchange rate rather than the inflation rate, suggesting that de jure and de facto objectives of the TCB are divergent; and iv) The continued exchange rate depreciation alone is not enough to address the structural trade deficit. In light of these findings, we suggest that i) The transition from a discretionary MP to a rule-based inflation-targeting MP and with a well-defined role for the exchange rate, would help TCB gain credibility and improve efficiency of its MP; and ii) Tunisian policymakers should also consider consolidating MP in achieving its price stabilization objective particularly through implementing “supply-side policy” actions aiming at promoting economic growth and addressing unsustainable fiscal and external imbalances.

Inflation response in a New Keynesian model with money illusion

AbstractThis study investigates the role of money illusion (MI) in a dynamic stochastic general equilibrium model. We introduce MI such that households, in their intertemporal optimization, erroneously recognize nominal variables as real ones. We find that first, our model could exhibit money nonneutrality in the long run; second, the Taylor principle is a sufficient condition for determinacy but not a necessary condition; third, the response to output in monetary policy rule matters for the model not to exhibit money nonneutrality in the long run; and finally, MI could flatten the slope that represents the output‐inflation trade‐off.

ANALYSIS OF THE EFFECTIVENESS OF THE MONETARY POLICY TRANSMISSION CHANNEL IN INDONESIA WITH A SINGLE TARGET OF INFLATION FOR THE PERIOD 2016:08 - 2022:12

The purpose of this study is to determine The Monetary Policy Transmission Channel In Indonesia With A Single Target of Inflation For The Period 2016:08 - 2022:12. The research method used the Vector Error Correction Model (VECM) for the period August 2016 until December 2022. This study uses secondary data from the Indonesian Central Statistics Agency (BPS) and CEIC (a company providing financial and macroeconomic indicator data). The results of this study show that inflation responses to the shock of variables in the Monetary Channel, Interest Rate Channel, and Inflation Expectation Channel is not very much. Viewed from the result of the Impulse Response Test and Variance Decomposition, the three channels for monetary policy transmission (monetary channel, interest rate channel, and expectation channel) must be more effectively implemented in Monetary Policy decision-making in Indonesia. The interest rate channel is the most effective channel among the three channels. The results of the Impulse Response test and Variance Decomposition prove that inflation responses to the shock of variables in the Interest Rate channel are the strongest and have the least time lag and variance of those variables. The most suitable variable used for an operational target in an interest rate channel is BI-7-Days-Repo-Rate (BI7DR). Based on comparation of the other two variables (deposit rate and interbank money market rate), the results of the Impulse Response test and Variance Decomposition show that BI7DR shock obtains strong and quick inflation responses.

Oil price shocks, inflation and policy response: the emerging market experience

Oil price shocks, inflation and policy response: the emerging market experience