Measures Of Inflation Research Articles

Underreporting of Purchases in the US Consumer Expenditure Survey

Abstract Motivated misreporting occurs when respondents give incorrect responses to survey questions to shorten the interview; studies have detected this behavior across many modes, topics, and countries. This paper tests whether motivated misreporting affects responses in a large survey of household purchases, the US Consumer Expenditure Interview Survey. The data from this survey inform the calculation of the official measure of inflation, among other uses. Using a parallel web survey and multiple imputation, this article estimates the size of the misreporting effect without experimentally manipulating questions in the survey itself. Results suggest that household purchases are underreported by approximately five percentage points in three sections of the first wave of the survey. The approach used here, involving a web survey built to mimic the expenditure survey, could be applied in other large surveys where budget or logistical constraints prevent experimentation.

Inflation and Real Measure of Central Bank Independence in Tunisia

Inflation and Real Measure of Central Bank Independence in Tunisia

Risk‐taking Behavior and Ownership Concentration the Case of Vietnamese Banks

Vietnam’s banking sector in recent years has shown significant improvements resulted from stable inflation and interest rates measurements, which has enhanced Vietnam’s financial system position on global market. Consequently, Vietnam’s commercial banks have raised further awareness of risk assessment and focused on risk management in order to making rational decisions in their daily business. However, a majority of the banking system is yet concentrating on profit or cost ratios factors and somewhat ignores the importance of studying the endogenous factors, especially ownership structure and ownership concentration on their business. This study examines the relationship between ownership concentration and risk-taking behavior in Vietnam’s banking system taking some operating efficiency factors into account, conducted on 20 different representatives from Vietnam banking system from 2002-2019.

The Extensive Margin of Aggregate Consumption Demand

Abstract About half of the change in U.S. non-durable consumption expenditure is due to changes in the products entering households’ consumption basket (the extensive margin). Changes in the basket are driven by fluctuations in the rate at which households add products; removals fluctuate little. These patterns reflect that, in response to income increases, households adopt consumer products already available in the market. Household adoption amplifies the effects of fiscal transfers on consumption by more than 30%. Cyclical household adoption of products also implies that inflation measures based on a representative household consuming all varieties available in the market underestimate true household-level inflation by as much as 1% per year over the Great Recession in the consumption categories covered by our data.

A Decade of Impact of Monetary Policy on Food Inflation: An Overview and Future Direction

This article presents a systematic literature review spanning the decade of 2010–2020 in a thematic fashion. It provides an in-depth analysis of how monetary policy regimes are responding to food inflation. It discusses about factors driving food inflation and the manner in which efficiency of financial markets facilitate policy transmission. Further, it explains how food insecurity is exacerbated by rise in food prices and the way high-income countries protect their farmers through input subsidies, indirectly contributing to global food price hike. It also argues that a strong monetary policy credibility can lend stationarity and mean-reversion to inflation rates. Next, it discusses the issues faced by central banks in measurement of inflation such as conflict of choice in different inflation measures and supply side constraints ranging from high farm-to-fork mark-ups to cartelization and hoarding. In subsequent section, it deals with the question whether to target headline or core inflation. After that, it presents a snapshot of various advanced and emerging countries operating their monetary policy in the presence of fiscal policy. It illustrates that the degree of fiscal intervention should be decided according to individual threshold of every country, taking into account the proportion of Ricardian and non-Ricardian population.

Accessibility measure for eternal inflation: dynamical criticality and higgs metastability

We propose a new measure for eternal inflation, based on search optimization and first-passage statistics. This work builds on the dynamical selection mechanism for vacua based on search optimization proposed recently by the author and Parrikar. The approach is motivated by the possibility that eternal inflation has unfolded for a finite time much shorter than the exponentially long mixing time for the landscape. The proposed accessibility measure assigns greater weight to vacua that are accessed efficiently under time evolution. It is the analogue of the closeness centrality index widely used in network science. The proposed measure enjoys a number of desirable properties. It is independent of initial conditions and oblivious to physical vs comoving weighing of pocket universes. Importantly, the proposed measure makes concrete and testable predictions that are largely independent of anthropic reasoning. Firstly, it favors vacua residing in regions of the landscape with funnel-like topography, akin to the energy landscape of naturally-occurring proteins. Secondly, it favors regions of the landscape that are tuned at dynamical criticality, with vacua having an average lifetime of order the de Sitter Page time. Thus the predicted lifetime of our universe is of order its Page time, ∼ 10130 years, which is compatible with Standard Model estimates for electroweak metastability. Relatedly, the supersymmetry breaking scale should be high, at least 1010 GeV. The discovery of beyond-the-Standard Model particles at the Large Hadron Collider or future accelerators, including low-scale supersymmetry, would rule out the possibility that our vacuum lies in an optimal region of the landscape. The present framework suggests a correspondence between the near-criticality of our universe and dynamical critical phenomena on the string landscape.

Bitcoin Under Inflation-Hedging Scrutiny - The Extended Fisher Hypothesis in Crypto

Improved access to the scarce, digital resource justifies analyzing Bitcoin from a macroeconomic perspective. Using ten years of historical monthly returns, this study examines Bitcoin’s hedging capabilities with respect to inflation measures following the Fisher hypothesis. Short-term interest rates are used to split the ex post observed inflation into an ex ante expected and unexpected part by applying autoregressive distributed lag models. Having 40 countries under scrutiny, the results show that Bitcoin has partial hedging capabilites against expected inflation in specific countries. In a cross-sectional view on expected inflation, rolling window regressions reveal a diminishing number of significant inflation betas over time.

Asymmetric Impact of Oil Price on Inflation in Nigeria

This study examines the impact of oil price shocks on inflation in Nigeria. A NonLinear Autoregressive Distributed Lag (NARDL) approach was applied on quarterly data spanning 1999Q1 to 2018Q4. Results showed that oil price increases led to increase in headline, core and food measures of inflation in Nigeria. However, a decline in oil price resulted in a decline in the marginal cost of production and culminated in moderation of domestic inflation. Furthermore, negative oil price shocks led to higher inflation in Nigeria when exchange rate is dropped from the models, indicating that exchange rate absorbed the impact of oil price declines earlier, as lower oil prices culminated in lower external reserve, depreciation of the naira and ultimately higher inflationary pressures. Also, core inflation tends to respond more to oil price increases than food inflation. These results were robust to changes in econometric specifications and sample period. The study recommends that monetary policy actions of the Central Bank of Nigeria should focus on taming core inflation in periods of substantial oil price increases while strengthening its efforts at ensuring domestic sustainability in food production through its agricultural intervention programmes to further minimize the impact of international oil prices on food inflation. Similarly, the fiscal authorities should ensure that the fiscal stance is not excessively procyclical in periods of rising oil prices.

PERFORMANCE OF CHINA’S CORE INFLATION MEASURES FOR MONETARY POLICY

In this paper, China’s core inflation is defined as any price changes that are caused by the money supply. This definition is especially relevant to examining monetary policy because the money supply is controllable by China’s central bank. This paper develops a New Keynesian DSGE model with a quantity-based monetary rule that fits real aggregated data from China to analyze core inflation’s key characteristics. Eight different approaches are used to estimate core inflation in China. By constructing VAR models of output growth, money supply growth and core inflation, we estimate the response of core inflation measures to the money supply shock. By matching the response to money supply shocks in both the model and the data, we compare the performance of different core inflation measures for monetary policy in China.

Some Alternative Monetary Facts

In this paper, we discuss the modern history of monetarism and its alternatives, as well as the changing empirical relationship of various measures of money and inflation. After demonstrating that previous naïve correlations between money and inflation as established in the 20th century literature have largely disappeared, we explain why this cannot be taken as support for an increased reliance on permanent monetary finance. Rather, we argue that rapid technological innovation in payments systems—both public and private—including in global pledged collateral markets, portends a declining demand for central bank liabilities.

One-Stop Source: A Global Database of Inflation

This paper introduces a global database that contains inflation series: (i) for a wide range of inflation measures (headline, food, energy, and core consumer price inflation; producer price inflation; and gross domestic product deflator changes); (ii) at multiple frequencies (monthly, quarterly and annual) for an extended time period (1970-2021); and (iii) for a large number of (up to 196) countries. As it doubles the number of observations over the next-largest publicly available sources, our database constitutes a comprehensive, single source for inflation series. We illustrate the potential use of the database with three applications. First, we study the evolution of inflation since 1970 and document the broad-based disinflation around the world over the past half-century, with global consumer price inflation down from a peak of roughly 17 percent in 1974 to 2.5 percent in 2020. Second, we examine the behavior of inflation during global recessions. Global inflation fell sharply (on average by 0.9 percentage points) in the year to the trough of global recessions and continued to decline even as recoveries got underway. In 2020, inflation declined less, and more briefly, than in any of the previous four global recessions over the past 50 years. Third, we analyze the role of common factors in explaining movements in different measures of inflation. While, across all inflation measures, inflation synchronization has risen since the early 2000s, it has been much higher for inflation measures that involve a larger share of tradable goods.

Inflation Measurement and its Assessment in the Ecb's Monetary Policy Strategy Review

This paper – which takes into consideration overall experience with the Harmonised Index of Consumer Prices (HICP) as well as the improvements made to this measure of inflation since 2003 – finds that the HICP continues to fulfil the prerequisites for the index underlying the ECB’s definition of price stability. Nonetheless, there is scope for enhancing the HICP, especially by including owner-occupied housing (OOH) using the net acquisitions approach. Filling this long-standing gap is of utmost importance to increase the coverage and cross-country comparability of the HICP. In addition to integrating OOH into the HICP, further improvements would be welcome in harmonisation, especially regarding the treatment of product replacement and quality adjustment. Such measures may also help reduce the measurement bias that still exists in the HICP. Overall, a knowledge gap concerning the exact size of the measurement bias of the HICP remains, which calls for further research. More generally, the paper also finds that auxiliary inflation measures can play an important role in the ECB’s economic and monetary analyses. This applies not only to analytical series including OOH, but also to measures of underlying inflation or a cost of living index. JEL Classification: C43, C52, C82, E31, E52

Forecasting with Shadow-Rate VARs

Interest rate data are an important element of macroeconomic forecasting. Projections of future interest rates are not only an important product themselves, but also typically matter for forecasting other macroeconomic and financial variables. A popular class of forecasting models is linear vector autoregressions (VARs) that include shorter- and longer-term interest rates. However, in a number of economies, at least shorter-term interest rates have now been stuck for years at or near their effective lower bound (ELB), with longer-term rates drifting toward the constraint as well. In such an environment, linear forecasting models that ignore the ELB constraint on nominal interest rates appear inept. To handle the ELB on interest rates, we model observed rates as censored observations of a latent shadow-rate process in an otherwise standard VAR setup. The shadow rates are assumed to be equal to observed rates when above the ELB. Point and density forecasts for interest rates (short term and long term) constructed from a shadow-rate VAR for the US since 2009 are superior to predictions from a standard VAR that ignores the ELB. For other indicators of financial conditions and measures of economic activity and inflation, the accuracy of forecasts from our shadow-rate specification is on par with a standard VAR that ignores the ELB.

Indicator variables for inflation expectations in the Euro area

In this paper, we model the Euro area market-based inflation expectations extracted from the inflation-linked swaps, and study the macroeconomic information embedded in expected inflation. First, we estimate the Gaussian affine term structure model to decompose the forward ILS-implied inflation rate into inflation expectations and inflation risk premium at one-, two- and three-year horizons. Secondly, from a large panel of macroeconomic series we identify the most significant indicator variables for inflation expectations using the elastic net modification of the LASSO regression. Finally, we measure partial contributions of individual indicator variables to the changes in inflation expectations. Our findings reveal that across horizons considered inflation expectations are correlated to the measures of current inflation of the overall price level and price level of services, the unemployment rate, and the Euro exchange rate. The identified indicators provide a useful information about the evolution of inflation expectations with different intensities at different horizons.

Determinacy and E-stability with Interest Rate Rules at the Zero Lower Bound

This paper examines the uniqueness and learnability of rational expectations equilibrium when the policy rate is occasionally pegged at the zero lower bound (ZLB). We consider a model that features recurring, transient ZLB regimes and compare various interest rate rules which respond to inflation, price level, and average inflation in addition to output. In this environment, determinacy conditions ensure a unique equilibrium, given the recurrence of ZLB events, and E-stability conditions can rule out deflationary spirals under learning. We fi nd that price level targeting, including nominal income targeting as a special case, most effectively promotes determinacy and E-stability among the policy frameworks, while the economy under a standard inflation targeting rule is prone to indeterminacy. Average inflation targeting can promote determinacy and E-stability very effectively, provided that the measure of average inflation is sufficiently backward looking.

Indicator variables for inflation expectations in the euro area

In this paper, we model the Euro area market-based inflation expectations extracted from the inflation-linked swaps, and study the macroeconomic information embedded in expected inflation. First, we estimate the Gaussian affine term structure model to decompose the forward ILS-implied inflation rate into inflation expectations and inflation risk premium at one-, two- and three-year horizons. Secondly, from a large panel of macroeconomic series we identify the most significant indicator variables for inflation expectations using the elastic net modification of the LASSO regression. Finally, we measure partial contributions of individual indicator variables to the changes in inflation expectations. Our findings reveal that across horizons considered inflation expectations are correlated to the measures of current inflation of the overall price level and price level of services, the unemployment rate, and the Euro exchange rate. The identified indicators provide a useful information about the evolution of inflation expectations with different intensities at different horizons.

Quantifying Bias and Inaccuracy of Upper-Level Aggregation in HICPs for Germany and the Euro Area

Current HICP measurement practices produce an upward bias of about one-ninth of a percentage point in German inflation due to changing consumption being disregarded and the preliminary data being used in the compilation of expenditure weights. The statistical uncertainty produced by these sources of mismeasurement can be illustrated by an interdecile range of about one-quarter of a percentage point. The annual updating of the quantity component of the weights, which was implemented in 2012, has reduced the substitution component, making the disregard of changing consumption virtually a non-issue for the euro area HICP. The measurement of the German HICP is impaired by the extrapolation of expenditure weights, and the use of preliminary national accounts data since 2012 has not led to an improvement. This source of mismeasurement is likely to be relevant for the euro area HICP as well but cannot be quantified due to data constraints. Compilers might identify weight updating techniques as a potential field of HICP quality improvement. For the time being, users have to consider this source of mismeasurement when assessing the precision of the HICP as a measure of true inflation.

A Multivariate Unobserved Components Model to Estimate Potential Output in the Euro Area: A Production Function Based Approach

This paper builds an unobserved components model that combines a multivariate filter approach with a Cobb-Douglas production function. This combination allows potential output estimates to incorporate more economic structure than the traditional production function approach, while retaining the ability to conduct growth accounting exercises. The model is a backward-looking state space model estimated with Bayesian methods employing the Kalman filter to jointly decompose six key observable variables (real GDP, unemployment rate, labour force participation rate, hours worked per person, a measure of core inflation and wage inflation) into trend and cyclical components. To do so, it relies on several reduced form relationships across the cyclical components, such as a wage and a price Phillips curve and an Okun's law type relationship, while it also assumes common trends for a few variables and allows for hysteresis effects. The model is estimated on aggregate euro area data with Bayesian methods. The paper finds that the resulting output gap estimates have good revision properties and reasonable forecasting performance in particular in terms of GDP and core inflation vis-a-vis a set of benchmarks.

Исследование пространственной автокорреляции: случай российской региональной инфляции

We apply APLE statistic to explore spatial autocorrelation of Russian regional inflationary processes. APLE is discussed to be the fine alternative to Moran’s I. To conduct this study we modify statistics of spatial dependence for panel data structure. We use time series of Russian regional CPIs (i.e. quantitative measure of inflation) of food, non-food, services baskets. We find evidence to confirm the hypothesis of the existence of spatial autocorrelation of regional inflationary processes on the horizon of our study.

Proposition of a hybrid price index formula for the Consumer Price Index measurement

Research background: The Consumer Price Index (CPI) is a basic, commonly accepted and used measure of inflation. The index is a proxy for changes in the costs of household consumption and it assumes constant consumer utility. In practice, most statistical agencies use the Laspeyres price index to measure the CPI. The Laspeyres index does not take into account movements in the structure of consumption which may be consumers' response to price changes during a given time interval. As a consequence, the Laspeyres index can suffer from commodity substitution bias. The Fisher index is perceived as the best proxy for the COLI but it needs data on consumption from both the base and research period. As a consequence, there is a practical need to look for a proxy of the Fisher price index which does not use current expenditure shares as weights.
 Purpose of the article: The general purpose of the article is to present a hybrid price index, the idea of which is based on the Young and Lowe indices. The particular aim of the paper is to discuss the usefulness of its special case with weights based on correlations between prices and quantities.
 Methods: A theoretical background for the hybrid price index (and its geometric version) is constructed with the Lowe and Young price indices used as a starting point. In the empirical study, scanner data on milk, sugar, coffee and rice are utilized to show that the hybrid index can be a good proxy for the Fisher index, although it does not use the expenditures from the research period.
 Findings & Value added: The empirical and theoretical considerations con-firm the hybrid nature of the proposed index, i.e. in a special case it forms the convex combination of the Young and Lowe indices. This study points out the usefulness of the proposed price index in the CPI measurement, especially when the target index is the Fisher formula. The proposed general hybrid price index formula is a new one in the price index theory. The proposed system of weights, which is based on the correlations between prices and quantities, is a novel idea in the price index methodology.