Inflation Regime Research Articles

Effects of commodity price shocks on inflation: a cross-country analysis

Large fluctuations in commodity prices since the 2000s are a renewed concern among policymakers about price stability. This paper investigates the effects of commodity price shocks on headline inflation with a cross-country panel. We find that the effects of commodity price shocks on inflation virtually disappear within about one year after the shock. This transitory effect suggests a low risk of a persistent second-round effect on inflation. While the effect on the price level varies across country groups, the transitory effect is fairly robust. We also allow for the possibility that the effect of commodity price shocks may vary, depending on inflation regimes. Even in this case, we observe the transitory effects at least in countries with exchange-rate flexibility.

Vanishing of local non-Gaussianity in canonical single field inflation

We study the production of observable primordial local non-Gaussianity in two opposite regimes of canonical single field inflation: attractor (standard single field slow-roll inflation) and non attractor (ultra slow-roll inflation). In the attractor regime, the standard derivation of the bispectrum's squeezed limit using co-moving coordinates gives the well known Maldacena's consistency relation fNL = 5 (1−ns) / 12. On the other hand, in the non-attractor regime, the squeezed limit offers a substantial violation of this relation given by fNL = 5/2. In this work we argue that, independently of whether inflation is attractor or non-attractor, the size of the observable primordial local non-Gaussianity is predicted to be fNLobs = 0 (a result that was already understood to hold in the case of attractor models). To show this, we follow the use of the so-called Conformal Fermi Coordinates (CFC), recently introduced in the literature. These coordinates parametrize the local environment of inertial observers in a perturbed FRW spacetime, allowing one to identify and compute gauge invariant quantities, such as n-point correlation functions. Concretely, we find that during inflation, after all the modes have exited the horizon, the squeezed limit of the 3-point correlation function of curvature perturbations vanishes in the CFC frame, regardless of the inflationary regime. We argue that such a cancellation should persist after inflation ends.

Inflationary Regime of the Evolution of the Scale Factor in the Relativistic Theory of Gravitation with a Graviton Mass

It is shown that a cosmological medium consisting of a kinetic and a potential component, at the outset of its evolution is vacuum-like and at the end of its evolution asymptotically becomes the quintessence.

Early universe with modified scalar-tensor theory of gravity

Scalar-tensor theory of gravity with non-minimal coupling is a fairly good candidate for dark energy, required to explain late-time cosmic evolution. Here we study the very early stage of evolution of the universe with a modified version of the theory, which includes scalar curvature squared term. One of the key aspects of the present study is that, the quantum dynamics of the action under consideration ends up generically with de-Sitter expansion under semiclassical approximation, rather than power-law. This justifies the analysis of inflationary regime with de-Sitter expansion. The other key aspect is that, while studying gravitational perturbation, the perturbed generalized scalar field equation obtained from the perturbed action, when matched with the perturbed form of the background scalar field equation, relates the coupling parameter and the potential exactly in the same manner as the solution of classical field equations does, assuming de-Sitter expansion. The study also reveals that the quantum theory is well behaved, inflationary parameters fall well within the observational limit and quantum perturbation analysis shows that the power-spectrum does not deviate considerably from the standard one obtained from minimally coupled theory.

Monetary policy rules in emerging countries: Is there an augmented nonlinear taylor rule?

This paper examines the Taylor rule in five emerging economies, namely Indonesia, Israel, South Korea, Thailand, and Turkey. In particular, it investigates whether monetary policy in these countries can be more accurately described by (i) an augmented rule including the exchange rate, as well as (ii) a nonlinear threshold specification (estimated using GMM), instead of a baseline linear rule. The results suggest that the reaction of monetary authorities to deviations from target of either the inflation or the output gap differs in terms of the size and/or statistical significance of the coefficients in the high and low inflation regimes in all countries. In particular, the exchange rate has an impact in the former but not in the latter regime. Overall, an augmented nonlinear Taylor rule appears to capture more accurately the behaviour of monetary authorities in these countries.

Forecasting the duration of short‐term deflation episodes

AbstractThe paper proposes a simulation‐based approach to multistep probabilistic forecasting, applied for predicting the probability and duration of negative inflation. The essence of this approach is in counting runs simulated from a multivariate distribution representing the probabilistic forecasts, which enters the negative inflation regime. The marginal distributions of forecasts are estimated using the series of past forecast errors, and the joint distribution is obtained by a multivariate copula approach. This technique is applied for estimating the probability of negative inflation in China and its expected duration, with the marginal distributions computed by fitting weighted skew‐normal and two‐piece normal distributions to autoregressive moving average ex post forecast errors and using the multivariate Student t copula.

Analisis Pengaruh Utang terhadap Perekonomian dan Kemiskinan di Indonesia Periode 1949-2017

Since independence, Indonesia has experienced seven changes of national leadership. Starting from Soekarno, Soeharto, BJ Habibie, Abdurahman Wahid, Megawati, Susilo Bambang Yudhoyono (SBY), to Joko Widodo. During that time, foreign debt is always present to patch the development budget deficit. Debt is expected to move the wheels of the economy, create growth, create jobs, and alleviate poverty. This study aims to analyze the effect of debt, inflation and government regime differences on economic growth and poverty levels in Indonesia, from the Old Order era, the New Order, to the Reform Order. The study used secondary data obtained from Bank Indonesia, the National Development Planning Agency (Bappenas), the Central Bureau of Statistics (BPS), the World Bank, and other reference sources such as books, journals and scientific papers. The data used are the value of foreign debt, national income (Gross Domestic Product / GDP), population, number and ratio of the poor, inflation rate in the period 1949 - 2017. The results of multiple regression analysis with dummy variable (using Eviews 10 application program) show the following results: Foreign debt has correlation with the national economic condition, in particular the value of Indonesian Gross Domestic Product and the level of poverty. Debt tends to increase the value of GDP and reduce poverty. In terms of debt governance as a driver of the economy and poverty, the Suharto and Habibie Era tend to be different and better than the Sukarno Era. While the debt management of Era Abdurrahman Wahid, Era Megawati, Era SBY and Era Jokowi no different or no better than Era Sukarno. Although nationally can increase GDP and reduce poverty, debt can not improve people's prosperity (read per capita income). Foreign debt even tends to reduce the level of welfare of the people. This applies to all government regimes.
 

The signalling content of asset prices for inflation: Implications for quantitative easing

We investigate the information content of financial variables as signalling devices of two abnormal inflationary regimes: (1) low inflation or deflation, and (2) high inflation. Specifically, we determine the information content of equity and house prices, private credit volumes, and sovereign and corporate bond yields, for 11 advanced economies over the past three decades, using both signalling extraction and logit modelling. The outcomes show that high asset prices more often signal high inflation than low inflation/deflation. However, in some countries, high asset prices and low bond yields are a significant indicator of low inflation or deflation as well. The transmission time of financial developments to inflation can be quite long (up to 8 quarters). For monetary policy, these findings imply that stimulating asset prices through Quantitative Easing (QE) can effectively influence inflation, but that the effects are quite uncertain, both regarding timing and direction.

Stock returns, velocity dynamics and inflation volatility

ABSTRACTOur model relates the variability of stock returns to the variability of consumption velocity and shows that real stock returns tend to co-vary negatively with expected inflation in a period (or regime) of low and stable inflation and to co-vary positively with expected inflation in a period (or regime) of high and volatile inflation. Long-run real stock returns are shown to be positively related to expected inflation. Our empirical results for 20 countries provide consistent support for our propositions, indicating that the standard deviation of the annual inflation rate roughly equal to 10% is the dividing line between negative and positive return-inflation relations.

Breaks and the statistical process of inflation: the case of estimating the ‘modern’ long-run Phillips curve

‘Modern’ theories of the Phillips curve inadvertently imply that inflation is an integrated or near-integrated process, but this implication is strongly rejected using US data. Alternatively, if we assume that inflation is a stationary process around a shifting mean (due to changes in monetary policy), then any estimate of long-run relationships in the data will suffer from a ‘small-sample’ problem as there are too few stationary inflation ‘regimes’. Using the extensive literature on identification of structural breaks, we identify inflation regimes which are used in turn to estimate with panel data techniques the US long-run Phillips curve.

Inflation Expectations in a Highly Volatile Environment: Evidence from a Firms' Survey

This study provides new evidence about inflation expectations formation in a highly volatile environment, in which inflation dropped dramatically from three-digits annual rate to less than 3%. Our findings, based on an Israeli survey of firms' expectations, support information rigidity theories, and at the same time point to the presence of asymmetric preference towards forecast errors. Most importantly, both inattentiveness and asymmetry depend on inflation, being more pronounced when inflation is sufficiently decreasing. This pattern applies both for high and low inflation regimes. Our evidence demonstrates the complexity of inflation expectations, having important implications for macroeconomic dynamics and policy issues.

On the Prediction of the Inflation Crises of South Africa Using Markov-Switching Bayesian Vector Autoregressive and Logistic Regression Models

The aim of this study is to build an early warning system (EWS) model for inflation rates of South Africa (SA). A logistic regression model (LRM) is used in collaboration with a Markov-switching Bayesian vector autoregressive (MS-BVAR) to produce the estimates. Monte Carlo experimental methods are used to simulate both the inflation rate and repo rate of the SA economy. The procedure simulated 228 observations for the period of January 1999 to December 2017. Preliminary results confirmed the applicability of both models for further analyses. MS (2)-BVAR(1) proved to be the most appropriate model for detecting regime shifts in inflation rates. The results indicate that SA inflation might be in a low inflation regime for the period of 11 years and 4 months. Surprisingly, we discovered that the repo rate is not a good tool to combat the inflation rate in SA i.e a 1% increase in the repo in a month significantly increased inflation rate by about 81%. The findings also confirmed 51% and 53% of in-sample and out-of-sample SA inflation crises forecasts to be correctly classified. This is in accordance with the reported results of Cruz and Mapa (2013) and Makatjane and Xaba (2016). The verdicts of the study are relevant for policy purposes and literature.

Cosmology in the Universe with Distance Dependent Lorentz-Violating Background

We consider a cosmological setup with inflaton in the presence of a redshift dependent Lorentz-violating time-like background to address the inflationary regime and other phases of the Universe. We also show that the regime of dark energy at large distances (low redshifts) is essentially dominated by the presence of the Lorentz-violating background.

INFLATION, INFORMATION RIGIDITY, AND THE STICKY INFORMATION PHILLIPS CURVE

The Great Moderation is characterized as a period of stable macroeconomic conditions, especially with regard to inflation. Under the sticky information theory, this environment may provide a few incentives for agents to update information on inflation, thus, producing a new slope of the sticky information Phillips curve. We estimate the degree of information rigidity implied by the sticky information Phillips curve. Using threshold models, we identify two regimes of high and low inflation, finding that each identified regime is associated with a specific degree of information stickiness. This evidence is consistent with agents that update information faster when inflation is higher.

Power spectra in warm G inflation and its consistency: Stochastic approach

Recently, it has been realized that the so-called G-inflation model inspired by supplementing a generalized covariant Galileon-like non-linear derivative self-interacting term to the standard kinetic term should be ruled out from inflationary models. This is due to the fact that it suffers from lack of an oscillatory phase at the end of the inflationary regime which is typically accompanied by the appearance of a negative squared propagation speed of the scalar mode leading to instabilities of small-scale perturbations. In this regard, the warm G-inflation scenario is proposed where for G-inflation to survive, the Galileon scalar field is coupled to the radiation field through a dissipation term which results in removing the reheating period due to the characteristics of warm inflationary scenario. In so doing, a linear stability analysis is first performed to obtain the appropriate slow-roll conditions in such a proposal. Cosmological perturbations of the model are then investigated by utilizing fluctuation-dissipation theorem and analytical expressions are derived for observable quantities; the power spectrum, tilt spectral index and tensor-to-scalar ratio in terms of $PSR$ parameters and Galileon flow functions. Finally, the model is solved for chaotic self-interacting potentials, particularly the renormalizable Higgs potential $\frac{\lambda}{4} \phi^{4}$, and shown to be consistent with observations in the weak dissipation $Q \ll 1+ 3\frac{\delta_{GX}}{\delta_{X}}$ and G-dominant $3\frac{\delta_{GX}}{\delta_{X}}\gg 1$ regime despite its large self-coupling, since the energy scale at the horizon crossing is depressed by the synergy of Galileon and thermal effects.

Dynamics of polynomial Chaplygin gas warm inflation

In the present work, we study the consequences of a recently proposed polynomial inflationary potential in the context of the generalized, modified, and generalized cosmic Chaplygin gas models. In addition, we consider dissipative effects by coupling the inflation field to radiation, i.e., the inflationary dynamics is studied in the warm inflation scenario. We take into account a general parametrization of the dissipative coefficient Gamma for describing the decay of the inflaton field into radiation. By studying the background and perturbative dynamics in the weak and strong dissipative regimes of warm inflation separately for the positive and negative quadratic and quartic potentials, we obtain expressions for the most relevant inflationary observables as the scalar power spectrum, the scalar spectral, and the tensor-to-scalar ratio. We construct the trajectories in the n_mathrm{s}–r plane for several expressions of the dissipative coefficient and compare with the two-dimensional marginalized contours for (n_mathrm{s},r) from the latest Planck data. We find that our results are in agreement with WMAP9 and Planck 2015 data.

Inflation and Output Growth Dynamics in South Africa: Evidence from the Markov Switching Vector Autoregressive Model

ABSTRACTThis paper introduces the possibility of asymmetry in the reaction of output growth to inflation shocks in South Africa by making use of the Markov-switching vector autoregressive model. Using quarterly data from 1969Q1 to 2013Q4, the empirical finding suggests that the reaction of output growth to inflation shocks is not only regime dependent but is also contingent on how the monetary authority reacts to such shocks. Two important regimes are identified; the high and low inflation volatility regimes. Consistent with the signal extraction theory, the output effect of inflation shocks is found to be significantly lower in the high inflation volatility regime compared to the low inflation regime.

The impact of monetary policy on gold price dynamics

Ever since the collapse of the Bretton-Woods system, gold has retained its function as an important monetary commodity (Baur and Lucey, 2010), and continues to provide important inflation forecasting information to monetary policy setters (Tkacz, 2007). However, Capie et al. (2005) highlight the instability of gold price dynamics through time, attributing it to unpredictable political attitudes and events. In this paper, we investigate gold price dynamics under different inflation regimes and stock market conditions using UK and US index-linked Treasury bond data. We show that gold lost its role as an inflation hedge after May 1997 in the UK, and after 2003 did not act as an inflation hedge in the US, supporting the argument that gold is an inflation hedge only in periods of high inflation and inflation expectations. Further, we show that gold retained its safe haven status throughout the sample period in both countries, but it did not act as a stock market hedge in the UK except during the 2008-9 global financial crisis. Finally, we conduct an event-study analysis of the impact of QE announcements from four leading central banks on the gold price in US dollars. While the QE announcements of the US Federal Reserve and the European Central Bank exerted a strong and weak influence on gold, respectively, the Bank of England and the Bank of Japan’s QE announcements had no discernible impact on the gold price.

Inflationary cosmology in unimodular F(T) gravity

We investigate the inflationary realization in the context of unimodular F(T) gravity, which is based on the F(T) modification of teleparallel gravity, in which one imposes the unimodular condition through the use of Lagrange multipliers. We develop the general reconstruction procedure of the F(T) form that can give rise to a given scale-factor evolution, and then we apply it in the inflationary regime. We extract the Hubble slow-roll parameters that allow us to calculate various inflation-related observables, such as the scalar spectral index and its running, the tensor-to-scalar ratio, and the tensor spectral index. Then, we examine the particular cases of de Sitter and power-law inflation, of Starobinsky inflation, as well as inflation in a specific model of unimodular F(T) gravity. As we show, in all cases the predictions of our scenarios are in a very good agreement with Planck observational data. Finally, inflation in unimodular F(T) gravity has the additional advantage that it always allows for a graceful exit for specific regions of the model parameters.

Markov-switching analysis of exchange rate pass-through: Perspective from Asian countries

This study presents a nonlinear pass-through from the exchange rate to domestic prices drawn from a dataset of six Asian countries. Using the Markov-switching model, it is found that there are two regimes. The extent of the pass-through is incomplete and is found to be significantly lower in stable regime states. Domestic prices are sensitive to external factors when inflation uncertainty is higher. Essentially, the pass-through estimates exhibit some variation across countries and regimes. Central banks are credible, but the exchange rate is ineffective as a shock absorber during the unstable regime. We find that the output gap has more influence on inflation when the level of inflation exhibits large and erratic variations. Policymakers need to pay attention during periods of high inflation because consumer prices respond differently when the economy is in a high compared to a low inflation regime.