Terms Of Inflation Research Articles

Measuring the Interaction of Wage and Price Phillips Curves for the U.S. Economy

This paper demonstrates that demand pressure, besides hybrid cost-pressure, matters both on the labor market and on the market for goods in the determination of wage and price inflation. We discuss theoretically and estimate for the USA wage and price Phillips curves exhibiting their own demand pressure measure in their respective market and weighted averages of perfectly foreseen short- and adaptively changed medium-run cost-pressure terms in addition. These curves are in their formal structure closely related to NK staggered wage and price dynamics, but differ radically from them in their implications. Our findings are that wages are more flexible than prices with respect to their demand pressure measure and that price determination gives much more weight to medium term inflation than does wage inflation. Supplemented by Okun's law, this implies a reduced form real wage dynamic that depends positively on economic activity, and thus an adverse type of real wage adjustment, if goods demand depends positively on real wages.

Dampak Liberalisasi Perdagangan terhadap Perilaku Pembentukan Harga Produk Industri melalui Structure-Conduct Performance Model

This paper analyzes the impact of trade liberalization on the domestic price of industry product by utilizing the structure-conduct-performance (SCP) model. Applying the model to a pooled data of the 3 digits ISIC level of Indonesian industry product, the result shows the abnormal price determination on industry level after the increase of trade liberalization. The existence of this phenomenon, the downward profit-margin rigidity, is indicated by the increase of the profit margin, which reduces the social welfare and tends to persist the inflation. A clear consequence for the Indonesian Central Bank, is to faster and increase the credibility of the middle and long term inflation target, either by clarify the policy signal and its consistency and increase the cooperation with the government.JEL: E31, L11, O24, P23Keyword:Trade liberalization, Structure-Conduct-Performance, Price, Industry

SUPPORTING AN INFLATION TARGETING POLICY WITH THE MEASUREMENT OF INFLATION CREDIBILITY

Inflation targeting anchors inflation expectations, which are not within the sphere of control of the authorities, but can only be influenced over time by consistent policy. As public distrust of inflation figures will feed through to inflation expectations, this paper highlights pilot studies measuring the credibility of inflation in terms of an inflation credibility barometer. Despite initial discouraging results, the conclusion is that knowledge and information improve the credibility of inflation, but only one inflation rate (ideally the one used for inflation targeting purposes) should be communicated. Moreover, the rate used for targeting purposes should be specified with ease of communication in mind.

Confronting hybrid inflation in supergravity with CMB data

$F$-term GUT inflation coupled to N=1 Supergravity is confronted with CMB data. Corrections to the string mass-per-unit-length away from the Bogomolny limit are taken into account. We find that a superpotential coupling $10^{-7}/\mcN \lesssim \kappa \lesssim 10^{-2}/\mcN$, with $\mcN$ the dimension of the Higgs-representation, is still compatible with the data. The parameter space is enlarged in warm inflation, as well as in the curvaton and inhomogeneous reheat scenario. $F$-strings formed at the end of $P$-term inflation are also considered. Because these strings satisfy the Bogomolny bound the bounds are stronger: the gauge coupling is constrained to the range $10^{-7} < g <10^{-4}$.

Competitiveness, Inflation, and Monetary Policy

This paper examines the way in which structural changes in the level of steady-state competitiveness and the trend rate of inflation affect inflation responses to monetary policy shocks, in scenarios chosen to capture broadly the conditions of the UK economy in the early 1990s and more recently. Cyclical changes in competitiveness are also considered, since it is not clear empirically whether changes in competitiveness have been predominantly structural or cyclical. A model based on work by Woodford is used, allowing for positive trend inflation and cyclical variations in competitiveness in a tractable manner. This extension enables the separate quantification of the impact of differences in the steady-state level of and cyclical changes in competitiveness on inflation in the short term, in high and low inflation environments. The paper quantifies the extent to which procyclical (countercyclical) changes in competitiveness dampen (amplify) the impulse responses of inflation to a given monetary policy shock. In the calibration used, the inflation response to monetary policy shocks in a low inflation/high competitiveness environment is dampened compared with a high inflation/low competitiveness environment. By contrast, inflation responses to monetary policy shocks in a low inflation/low competitiveness environment are similar to those in a high inflation/high competitiveness environment.

Inflation Targeting, Committee Decision Making and Uncertainty: The Case of the Bank of England's MPC

The transparency and openness of the monetary policymaking process at the Bank of England has provided very detailed information on both the decisions of individual members of the Monetary Policy Committee and the information on which they are based. In this paper we consider this decision making process in the context of a model in which inflation forecast targeting is used but there is heterogeneity among the members of the committee. We find that internally generated forecasts of output and market generated expectations of medium term inflation provide the best description of discrete changes in interest rates. We also find a role for asset prices through the equity market, foreign exchange market and housing prices. There are also identifiable forms of heterogeneity among members of the committee that improves the predictability of interest rate changes. This can be thought of as supporting the argument that full transparency of monetary policy decision making can be welfare enhancing.

Modelling U.S. monthly inflation in terms of a jointly seasonal and non-seasonal long memory process

This article examines monthly U.S. inflation rates by means of fractionally integrated time series techniques. We use a procedure of Robinson (J Am Statist Assoc 1994; 89:1420) that permits us to simultaneously test the degrees of integration at both the zero and the seasonal frequencies. The results show that long memory takes place at both frequencies, the orders of integration being in both cases higher than 0 but smaller than 0.5, implying stationarity but long memory behaviour. In addition, the root at the long run or zero frequency seems to play a much more important role than the seasonal one, with shocks affecting the latter component decaying faster than in the former case. Copyright © 2005 John Wiley & Sons, Ltd.

Inflation on Fractional Branes: D–Brane Inflation as D–Term Inflation

We describe a D--brane inflation model which consists of two fractional D3 branes separated on a transverse $T^2 \times K3$. Inflation arises due to the resolved orbifold singularity of $K3$ which corresponds to an anomalous D--term on the brane. We show that D--brane inflation in the bulk corresponds to D--term inflation on the brane. The inflaton and the trigger field parametrize the interbrane distances on $T^2$ an $K3$ respectively. After inflation the branes reach a supersymmetric configuration in which they are at the origin of $T^2$ but separated along the $K3$ directions.

D-term Inflation and Nonperturbative Kahler Potential of Dilaton

We study the $D$-term inflation scenario with a nonperturbative K\"ahler potential of the dilaton field. Although the FI term which leads an inflationary expansion is given by the derivative of the K\"ahler potential with respect to the dilaton in heterotic string models with anomalous U(1), the too large magnitude is problematic for a viable $D$-term inflation. In this paper, we point out that the K\"ahler potential with a nonperturbative term can reduce the magnitude of FI term to desired values while both the dilaton stabilization and $D$-term domination in the potential are realized by nonperturbative superpotential.

Gauge-invariant second-order perturbations and non-Gaussianity from inflation

We present the first computation of the cosmological perturbations generated during inflation up to second order in deviations from the homogeneous background solution. Our results, which fully account for the inflaton self-interactions as well as for the second-order fluctuations of the background metric, provide the exact expression for the gauge-invariant curvature perturbation bispectrum produced during inflation in terms of the slow-roll parameters. The bispectrum represents a specific non-Gaussian signature of fluctuations generated by quantum oscillations during slow-roll inflation. However, our findings indicate that detecting the non-Gaussianity in the cosmic microwave background anisotropies emerging from the second-order calculation will be a challenge for the forthcoming satellite experiments.

D-term inflation and neutrino mass

We study a $D$-term inflation scenario in a model extended from the minimal supersymmetric standard model (MSSM) by two additional abelian factor groups focussing on its particle physics aspects. Condensates of the fields related to the inflation can naturally give a possible solution to both the $\mu$-problem in the MSSM and the neutrino mass through their nonrenormalizable couplings to the MSSM fields. Mixings between neutrinos and neutralinos are also induced by some of these condensates. Small neutrino masses are generated by a weak scale seesaw mechanism as a result of these mixings. Moreover, the decay of the condensates may be able to cause the leptogenesis. Usually known discrepancy between both values of a Fayet-Iliopoulos $D$-term which are predicted by the COBE normalization and also by an anomalous U(1) in the weakly-coupled superstring might be reconciled.

What are consumer price statistics good for?

This paper studies five different aspects of inflation. Undoubtedly, there are manifold requirements made on the consumer price index. It is designed to measure changes in the cost of living and the cost of holding money, to serve as basis for calculating real interest rate and real exchange rates and to fulfil the coordinating role of a core inflation index. The authors of this paper believe that seeking to capture inflation in terms of a single “universal” indicator may lead to an oversimplification of the concept. In its current form, the Hungarian consumer price index does not “purely” suit any one of the theoretical concepts of inflation. The objective of this paper is to draw up a number of proposals related to the methodology of consumer price statistics, which appear to be one of the best data sources. In an attempt to make full use of this quality and illustrate the problems noted above, we shall propose a set of indicators, for analytical purposes, designed to be appropriate for the various “areas of application”.

How Strong is the Relation Between the Term Structure, Inflation and GDP?

This paper develops and estimates an equilibrium model which investigates the relationship between the term structure of interest rates, inflation and GDP growth. The model accounts for non-neutral effects of inflation, so that real and monetary variables are interrelated and jointly influence the term structure of interest rates, while bond yields convey information about expectations of output growth and inflation. Estimation is based on quarterly data for the United States over the period 1960-1999 and is carried out using a maximum likelihood - Kalman filter approach. The model fits the nominal term structure well and provides estimates for the implicit real term structure and for other unobservable variables, such as the instantaneous real interest rate and expected inflation rate and their time-varying central tendencies. The latter variables are shown to be strictly related to market expectations of medium-long term interest rate targets of the monetary authority. The estimates show that the covariance between output growth and inflation significantly affects long-term nominal bond prices, whereas the cross-sectional restrictions which link the yield curve to the macroeconomic variables give rise to relatively accurate in-sample and out-of-sample forecasts of inflation and GDP growth. The model also produces satisfactory predictions for future movements of the slope of the yield curve.

The Conquest of American Inflation

Presenting an analysis of the rise and fall of U.S. inflation after 1960, this book examines two broad explanations for the behaviour of inflation and unemployment in this period: the natural-rate hypothesis joined to the Lucas critique and a more traditional econometric policy evaluation modified to include adaptive expectations and learning. The text begins with an explanation of how American policymakers increased inflation in the early 1960s by following erroneous assumptions about the exploitability of the Phillips curve - the inverse-relationship between inflation and unemployment. In subsequent chapters, it connects a sequence of ideas, such as self-confirming equilibria, least-squares and other adaptive or recursive learning algorithms. The author synthesizes results from macroeconomics, game theory, control theory, and other fields to extend both adaptive expectations and rational expectations theory, and he explains postwar inflation in terms of drifting coefficients. He interprets his results in favour of adaptive expectations as the relevant mechanism affecting inflation policy. This book is intended for academics, graduate students, and professional economists.

SupersymmetricD-term inflation, reheating, and Affleck-Dine baryogenesis

The phenomenology of supersymmetric models of inflation, where the inflationary vacuum energy is dominated by D-terms of a U(1), is investigated. Particular attention is paid to the questions of how to arrange for sufficient e-folds of inflation to occur, what kind of thermal history is expected after the end of inflation, and how to implement successful baryogenesis. Such models are argued to require a more restrictive symmetry structure than previously thought. In particular, it is non-trivial that the decays of the fields driving D-inflation can reheat the universe in such a way as to avoid the strong gravitino production constraints. We also show how the initial conditions for Affleck-Dine baryogenesis can arise in these models and that the simplest flat directions along which baryon number is generated can often be ruled out by the constraints coming from decoherence of the condensate in a hot environment. At the end, we find that successful reheating and baryogenesis can take place in a large subset of D-inflationary models.

On the Costs of Inflation and Unemployment

The costs of inflation and unemployment and the related issue of Enemy Number have been a popular topic in the press, particularly in the rhetoric of politicians and central bankers. Rightwing politicians (echoed by supposedly independent central bankers) and journalists have been telling the public that inflation is Public Enemy Number One, and therefore it must be fought to the last drop of blood. Academic economists have also engaged in this debate by presenting theories and econometric estimates of the costs of inflation and unemployment with an obvious dichotomy. Those economists who endorse the proposition that inflation is Public Enemy Number One produce evidence on the costs of inflation. On the other hand, economists who reject this proposition produce evidence on the costs of unemployment. The latter would then compare their results with those of the former to prove their point, although the two sets of results may be based on different countries, sample periods, and methodologies. The objective of this paper is to reexamine this issue and to present some evidence on the costs of inflation and unemployment in terms of their effect on output, using one model applied to the same country (the United States) over a very long period (1890-1987). For this purpose, the structural time-series approach proposed by Harvey (1985, 1989) is used to test the relationship between output, on the one hand, and inflation and unemployment, on the other. One advantage of this approach is that there is implicit adjustment for cyclicality in the underlying variables which, in previous studies, proved to be problematical in the sense that spurious results may be obtained if no adjustment is made to take account of cyclical behavior.

The Short Term Inflation Hedging Characteristics of UK Real Estate

This study investigates the short term inflation hedging characteristics of U.K. real estate compared to other U.K. investments. It considers not only total returns but also changes in income and changes in capital values. The analyses are undertaken using annual and quarterly data. Stocks, bonds, appraisal-based real estate (including the three property types separately) and real estate stocks are considered. Real estate series, constructed from the original appraisal series to take account of autocorrelation, are also used. The methodology is based on that devised by Fama and Schwert (1977) and tests are undertaken for stationarity and for structural breaks. Hypotheses are established about the coefficients on expected and unexpected inflation in the model and these are tested. It is concluded that real estate has poorer short term hedging characteristics for total return, change in capital value and change in income than stocks but better characteristics than bonds. However, there is evidence to suggest that the relationships change under different economic environments.

Analysing Inflation: Monetary and Real Theories

The paper seeks to analyse the inflationary trends observed in Pakistan in the recent past by applying both the monetary and real theories. The former explains inflation in terms of changes in liquidity per unit of real output and velocity whereas the latter makes use of real variables, especially, the structure of economy. Since the ratio between money spending (quantity of money times velocity) and real GDP defines general price level, monetary theory offers a natural tool for analysing inflation. Even factors like raising utility prices by the government or higher expected inflation add to inflation only when the additional demand for money generated by these factors is met with an accommodating increase in money supply (with stable velocity). During FY86 to 96 in Pakistan, money supply grew by 15.4 percent, GDP by 5.3 percent, and velocity by –0.24 percent. This yields an estimated inflation of 9.4 percent, very close to the actual one of 9.2 percent. Interestingly enough, more than half of the money expansion during the 90s emanated from credit for budgetary support, rendering the latter an active source of inflation. Under the real theory, we focused on full-cost-pricing wherein the market value-added price is defined as a weighted sum of various primary costs, e.g., wages, profits, and net indirect taxes. To capture the impact of terms of trade, foreign trade flows were added. It has been estimated that the overall inflation of 9.4 percent during FY86–95 was contributed to the extent of 5.6 points by profits, 2.2 points by wages, 0.9 by net indirect taxes and 0.7 by terms of trade. From policy perspective, monetary analysis has an edge over real analysis as controlling inflation through monetary management is relatively easier than through regulating various costs elements which go into the formation of price.

The persistence of unemployment and the natural rate in Spain

The concept of the natural rate of unemployment is central to policy making because it indicates the capability of an economy to increase the growth of employment without increasing inflation. Since it is a nonobservable variable, an empirical counterpart must be estimated. The methodology used is based on a system of simultaneous equations that combines nominal developments (wage and price data) with the structural and institutional features (real data) of the economy. Hence, estimates of the natural rate and potential output which are consistent between themselves are obtained. They are both robust in terms of their relationship to actual wage and price inflation and comprehensive in terms of their underlying structural determinants.

Primordial black holes and generalized constraints on chaotic inflation.

It is argued that the main quantity of interest in chaotic inflation is the cosmological expansion rate $H$ expressed as a function of the inflaton field $\ensuremath{\varphi}$. We derive a general prescription for realizing successful inflation in terms of a set of constraints on this function. The formalism is valid for all chaotic inflationary models based on a single scalar field which is minimally coupled to general relativity, so no restrictions on the dynamics of the field are necessary. This technique is used to investigate the possibility that primordial black holes (PBH's) may arise due to adiabatic quantum fluctuations in the inflaton. PBH formation can only be interesting if the amplitude of the fluctuations decreases with increasing mass scale and this is only possible if the field is accelerating or decelerating sufficiently fast. In this case, limits on the number of PBH's place very interesting constraints on the form of $H(\ensuremath{\varphi})$ since, together with the COBE measurement, they restrict the spectrum of fluctuations over 45 decades of mass. This corresponds to $35e$-foldings of inflationary expansion. If the amplitude of the fluctuations decreases as a power of mass, which is the most interesting situation, then $H(\ensuremath{\varphi})$ must have a trigonometric form and this allows the constraints to be expressed very simply.