Inflation Research Articles

Effects of Uncertainity on Domestic Private Investments in Kenya

The domestic private investment serves as a prerequisite for the development and modernization of any economy. In Kenya, macroeconomic and political uncertainties play a significant role in influencing private domestic investments. That is informed by the fact that these investments allow investors to fund particular ventures, which creates jobs and increase government revenues through taxation, hence boosting the growth of the economy and improving the living standards of the people. However, private domestic investments are severely affected by both macroeconomic and political uncertainties with regards to how the government formulates political, economic, and regulatory policies that affect the business climate. Investors are risk-averse; hence they base investment decisions on prevailing and future conditions of the business environment. This study focused on analyzing the effects of uncertainty on Kenya’s domestic private investments. The study estimated the Autoregressive-Distributed Lag (ARDL) bounds technique which captures both short and long-run dynamics of this relationship amongst the variables. Time series data from UNCTAD, World Bank, and the Central Bank of Kenya for the period spanning 1980 to the year 2019 was used. The study results suggest that real GDP (RGDP) and real effective exchange rates (REER) have a significant and positive effect on private domestic investment (PDI). In contrast, inflation (INFL), Real interest rates (RINR), Political uncertainty (PRI), and WUIKEN (economic policy uncertainty and volatility in the stock markets) have a negative and significant effect on private domestic investments. Based on these results, the most significant factors affecting private domestic investments were found to be political uncertainty (PRI), real gross domestic investment (RGDP), and WUIKEN (economic policy uncertainty and volatility in the stock markets). Effectively, the study recommends that the government should enact policies that increase the ease of doing business and reduce economic and political uncertainty, such as a reduction in the tax rate, stabilization of exchange rate and stable political environment in order to reduce investor uncertainty and skepticism and also enhance their confidence.

Effects of Uncertainity on Domestic Private Investments in Kenya

The domestic private investment serves as a prerequisite for the development and modernization of any economy. In Kenya, macroeconomic and political uncertainties play a significant role in influencing private domestic investments. That is informed by the fact that these investments allow investors to fund particular ventures, which creates jobs and increase government revenues through taxation, hence boosting the growth of the economy and improving the living standards of the people. However, private domestic investments are severely affected by both macroeconomic and political uncertainties with regards to how the government formulates political, economic, and regulatory policies that affect the business climate. Investors are risk-averse; hence they base investment decisions on prevailing and future conditions of the business environment. This study focused on analyzing the effects of uncertainty on Kenya’s domestic private investments. The study estimated the Autoregressive-Distributed Lag (ARDL) bounds technique which captures both short and long-run dynamics of this relationship amongst the variables. Time series data from UNCTAD, World Bank, and the Central Bank of Kenya for the period spanning 1980 to the year 2019 was used. The study results suggest that real GDP (RGDP) and real effective exchange rates (REER) have a significant and positive effect on private domestic investment (PDI). In contrast, inflation (INFL), Real interest rates (RINR), Political uncertainty (PRI), and WUIKEN (economic policy uncertainty and volatility in the stock markets) have a negative and significant effect on private domestic investments. Based on these results, the most significant factors affecting private domestic investments were found to be political uncertainty (PRI), real gross domestic investment (RGDP), and WUIKEN (economic policy uncertainty and volatility in the stock markets). Effectively, the study recommends that the government should enact policies that increase the ease of doing business and reduce economic and political uncertainty, such as a reduction in the tax rate, stabilization of exchange rate and stable political environment in order to reduce investor uncertainty and skepticism and also enhance their confidence.

Portfolio Rebalancing with GARCH Model at Jarvis Balanced Fund

With high inflation economy, investors must find another way to minimize their risk, but also maximize their return of the portfolio. Various instruments used for finding the most suitable amount of portfolio allocation. Single instruments, such as stocks, bonds, and time deposits is chosen by investors to secure their assets from inflation. The other investors chose mutual funds to grow their investments. One of the solutions to find the portfolio allocation is to rebalance the portfolio. In other perspectives, time-series model will help investors to predict the volatility that will happen in the future. GARCH (Generalized Autoregressive Conditional Heteroskedasticity) model is used for finding volatility and generalized it from the ARCH Model. With GARCH Model, the total amount of residual and GARCH has to be less than 1. Either way, it will be categorized as a volatile asset. From the top 5 balanced fund in 2021, Jarvis Balanced Fund is one of the best-balanced funds with return of 55.85%/year. Using Jarvis Balanced Fund (JBF) portfolio from 2021 prospectus as the sample of this research, it is concluded that JBF has to reduce the number of stocks and increase the risk-free assets to prevent volatility that happen in the portfolio. Following with the macro economy of high-inflation economy era.

Hyperinflation, kollektives Gedächtnis und Zentralbankunabhängigkeit

Abstract The German hyperinflation in 1923 was caused by monetary financing of the highly deficient German state budget by a dependent central bank. The social and economic consequences of the hyperinflation were disastrous. Combined with an instable political atmosphere, paving the way for the rise of the Nazis, the hyperinflation is deeply etched in the German collective memory. It is this collective memory that shapes the current institutional framework of the ECB. While risk aversion and institutional imprint of the ECB’S policy makers differ, the ECB’s institutional framework ensures that current inflation will not evolve into a hyperinflation.

Formation of the Russian model of evidence-based economic policy

The article records the fact that the economic policy of the Russian state is dominated not by scientifi c and evidencebased, but by political and opportunistic and purely ideological approaches. The introduction and long-term continuation of the fl at income tax scale of Russians associated with an attempt to implement the Laff er’s eff ect are perceived as an example of a false- and evidence-based approach in the implementation of fi scal policy. A major defect in the mechanism of state regulation of the economics implemented in Russia is the focus on global patterns of socio-economic development at the expense of using the specific patterns. This is expressed in the insuffi cient attention to the ratchet eff ect during the antiinfl ationary regulation of the national economics and the deliberately non-equivalent change of demand infl ation to proposal infl ation. The anti-crisis measures of the government by E. Primakov with conclusions about the need for their productive use in modern conditions to improve the quality of evidence-based economic policy are considered a signifi cant component of the Russian register of the "best practices".

The Effective and Efficient operation of Money market in Nigeria and its Resultant effects on Economic growth in Nigeria

The optimal performance of the money market is crucial for a nation’s economic stability and growth. This research examines the relationship between Nigeria’s money market operations and economic growth from 1998 to 2012. Using Ordinary Least Squares (OLS), the study analyzes a dataset with variables including the logarithm of GDP, exchange rates (EXCH), inflation (INF), interest rates (INT), and logarithm of money supply (LOG(MS)). Results offer insights into this connection. Notably, LOG(MS) significantly influences economic growth (T-statistic = 8.829752, p-value = 0.0000), emphasizing the role of a functional money market. Exchange rates (EXCH), inflation (INF), and interest rates (INT) aren’t significantly linked to growth, implying other factors at play. A robust model with R-squared at 0.971080 explains much GDP variation, validated by F-statistic of 83.94508, p-value = 0.000000. The study highlights a well-managed money market, especially LOG(MS), driving Nigeria’s growth. Policymakers should prioritize effective monetary policy, monitoring money supply, controlling inflation, and aligning market with economic goals.

The impact of institutional quality on economic growth: Evidence from post-soviet countries

The paper investigates the long-run impact of the institutional environment on economic growth for the sample of post-Soviet countries in 1996-2021. Using the Autoregressive Distributive Lag Model, we found that a U-shaped link exists between institutional quality and economic growth. Regarding the institutional quality dimensions, a similar link was observed for four out of six factors (POLSTAB, GOVEFF, RULELAW, CONTCORR). In contrast, the other two dimensions (REGQUAL, VOACC) exhibited inverted U-shaped impact on the dependent variable. Moreover, findings provide insight into the impact of control variables such as inflation (INF), openness (OPE), and population growth rate (POPGROWTH) on economic growth. More precisely, openness was found to have positive impact on the dependent variable, while inflation and population growth rate both had negative effect on economic growth. Based on these results, the paper suggests some policy implications for post-Soviet countries in terms of achieving economic growth by improving the institutional quality environment.

Impact of Fundamental and Macroeconomic Factors on Stock Returns: A Study on Cement Industry in Bangladesh

The main aim of this research is to figure out how fundamental and macroeconomic factors affect stock returns in Bangladesh. Five companies out of seven that are listed on the DSE and are part of the cement industry were randomly selected for this purpose. The companies involved are Heidelberg Cement Bangladesh Limited, Lafarge Holcim Bangladesh Limited, Premier Cement Mills Limited, Crown Cement PLC, and Meghna Cement Mills Limited. All the data were gathered as time series on a monthly basis, spanning the years 2012 through 2021. For the sake of the study's objective, some fundamental and macroeconomic factors are identified and incorporated into the framework of multiple regressions. In addition to these fundamental factors, which include debt to equity, return on asset (ROA), return on equity (ROE), price earnings (P/E) ratio, and earnings per share (EPS), macroeconomic factors, e.g., inflation (INF), gross domestic product (GDP), interest rate (INT), money supply (M2), foreign direct investment (FDI), and exchange rate (EX), are also considered. According to the study's overall findings, among key variables, Lafarge Holcim Bangladesh Ltd. and Heidelberg Cement Bangladesh Limited both had positive and statistically significant EPS and PE ratios, whereas Crown Cement PLC only had a positive and statistically significant PE ratio. However, only inflation was determined to have a negative and statistically significant effect on Meghna Cement Mills Ltd. among all sample companies. None of the fundamental or macroeconomic factors was found to be statistically significant in the case of Premier Cement Mills Limited. Since it includes a wide range of macroeconomic variables in addition to the selected fundamental variables, this study stands out from others for listed firms within the cement industry of DSE, Bangladesh. Such a study would be more beneficial if it took into account more exogenous variables and stocks that are listed in or outside of this sector. This study's entire data analysis was carried out with the use of the statistical software Eviews version 10.

Reversing The Covid-19 Setback on Income Poverty Reduction: What Policy Options for Nigeria?

Empirical studies have shown that the outbreak of COVID-19 globally has drastically created a reversal in the successes earlier recorded by governments’ efforts across nations. This study, therefore, investigated the sources of pre-COVID reduction in poverty and determined the policy options that could best enable the reversal of the setback to poverty reduction in Nigeria. The study employed the Autoregressive Distributed Lag (ARDL) model to analyze time-series data from Nigeria for a period from 1990 to 2020. The result found that while growths arising from ARGDP (share of agriculture to real GDP) and IRGDP (share of industry to real GDP) have negative relationships with growth in the incidence of poverty, growth from SRGDP (share of services to real GDP), though statistically significant at a 5% level, was found to be poverty enhancing. The result also revealed that growth in Human Capital (HC), Inequality (INQ), INQt-1, INFt-1 were found to be statistically significant. INQ and INF (Inflation) were found to be positively related to growth in the poverty rate, thus implying that growth in any or both of these can be poverty-enhancing. Also, growth in HC was found to exhibit an inverse relationship with growth in POR. The result further revealed that all the variables Government Social Recurrent Expenditure (GSEX), Capital Transfer (CT), and Social Transfer (ST) and their lagged values were found to be significant and poverty-reducing in Nigeria. The study, therefore, recommended policies that are aimed at improving the impacts of these variables.

Household Inflation Expectations Uncertainty: A Case for Pakistan

This study examines the uncertainty of consumer inf lation expectations in Pakistan using the data collected by the State Bank of Pakistan (SBP) through the Consumer Confidence Survey (CCS). CCS has been conducted every second month since January 2012. The research employs round numbers to calculate inflati on expectation uncertainty and finds it countercyclical and positively correlated with inflation. Further, it also displays a weakly positive correlation with inflation disagreement, inflation volatility, and the Economic Policy Uncertainty (EPU) index. Th e study also reveals that inflation expectation uncertainty is higher for female, less educated, and young respondents compared to businessmen, males, older people, and educated. The study suggests asymmetric behavior of inflation expectations uncertainty for high and low inflation levels, where uncertainty is high when inflation is high. The study also suggests that inflation uncertainty is significantly related to food inflation. Lastly, the study establishes that inflation expectation uncertainty affects the consumption of durable goods by influencing consumer spending attitudes.

Inflation in the United States: Will it Come Back?

This article covers the major trends and changes in consumer price development in the US economy during 2022-2023. The major incentive for American inflation is a great increase in the budget deficit and public debt. The author considers that further growth of federal debt will become an obstacle to the problem of inflation targeting. Presently Federal Reserve System is financing government debt by purchasing Treasure notes. To provide these activities FRS has to increase money volume in circulation. In fact this monetary policy has significant negative effects on US inflation. Traditional corporations have also some possibilities to increase their sale prices and to accelerate inflation. Oil prices, which have tendency to grow, are considered to add some value to current inflation. In the Section 2 the major points of Inflation Reduction Act of 2022 (IRA) are being analyzed. IRA is considered to be a remarkable law which aims to curb inflation by reducing budget deficit and investing into domestic energy production. According to the Budget Office, this Act will raise 738 billion dollars and authorize 391 billion dollars on energy change and 238 billion dollars in deficit reduction and tax reform. The law includes a large expansion and modernization efforts for the Internal Revenue Service (IRS). In the Section 3 the problem of imported inflation is being analyzed. The estimates prove that in 2015-2022 U.S. export pr ices grew much faster than import prices. In the result US terms of trade improved and in fact United States exported inflation trends to other countries. Expensive dollar accelerated this process.

Inflation and uncertainty in New Keynesian models: A note

This note studies the inflation-uncertainty relationship in a New Keynesian framework with Rotemberg pricing. Inflation in these models can be expressed as the discounted sum of current and expected future real marginal costs. The main point of this note is to highlight that real marginal costs in general equilibrium tend to be a convex function of output. This, ceteris paribus, makes higher uncertainty about future output increase current inflation, which can quantitatively off-set the deflationary effect of uncertainty via the precautionary savings channel (Basu and Bundick, 2017). • Inflation in New Keynesian models is linked to expected future real marginal costs. • Real marginal costs in these models tend to be a convex function of output. • This convexity makes supply uncertainty (via Jensen’s inequality) inflationary.

Banks as existential but uncontested Evil of the world economy (about the 2022 Nobel prize in economics)

The author examines the complex of reasons that prompted the Nobel Committee to award the Nobel Prize in Economics for 2022 to former Federal Reserve System chairman B. Bernanke (2006-2014). The award was granted not only to B. Bernanke, now a leading researcher at the Brookings Institute (Washington, D.C.), as well as to two other American economists - a professor at the University of Chicago, Booth School of Business D. Diamond and a professor of Washington University (St. Louis, Missouri) F. Dybvig for their research of the mechanism of the banking system functioning during financial crises. It is emphasized that the awarding of the Nodel prize to B. Bernanke and two other American economists was politically biased and intended to “rehabilitate” the monetary policy pursued by the FRS in 2007-2009 during the Great Recession. In the long run it led in the early 2020s to record inflation rate in 40 years. During his tenure as Chairman of the Fed, Bernanke, as a supporter of the monetary theory of the Great Depression of the 1930s, proposed in 1963 by the head of the Chicago School of monetarists M. Friedman, deliberately departed from the main regulatory norm of the former monetary policy, formulated in 1993 by Stanford University professor J. Taylor (the so-called “Taylor rules”). It provided for the constant excess of the federal fund rate over the current inflation rate in order to keep the consumer price index growth under constant control of the US monetary authorities. As a result of arbitrary actions by the FRS under the leadership of B. Bernanke, at the end of 2008 the federal fund rate was lowered to zero, and since then it has been consistently below the inflation index. As a result, in the early 2020s, the Fed lost control over inflationary processes in the American economy. These actions of the Fed were a direct consequence of the incorrect diagnosis made by B. Bernanke. He stated that the main threat to the American economy in XXI century, as in the 1930s, is a hypothetical deflationary mode of operation, although since the end of World War II the US economy functioned exclusively in an inflationary mode. Combined with the uncontrolled use of the printing press and exorbitant lending in the period 2007-2009 the Fed managed to minimize the crisis in the US banking system, in fact, to save it, at the cost of transforming the so-called “liquidity trap” into a “debt trap”. The Nobel Prize was awarded to B. Bernanke by the Swedish Central Bank for saving both the American and the leading segments of the world banking system, however, at present, the general population and various sectors of the real economy have to pay for such experiments in monetary policy.

Bihevioralna perspektiva strategije inflacionog ciljanja - slučaj Srbije

Regarding inflation, the lion's share of theory and literature refers to the analysis of its economic determinants. In our empirical analysis, we emphasized some behavioural factors embodied in the short-term inflation expectations of banks and companies, which are regarded as one of the essential factors for reaching desired current inflation dynamics. We considered whether and how the Central Bank can, through inflation targeting as monetary strategy, nudge the inflation expectations of market participants in the preferred direction. In the paper, we looked into the performances of inflation targeting in the case of Serbia and considered potential explanations of the given (un)success from both a neoclassical and a behavioural theoretical perspective. We found that in the case of Serbia market participants' expectations in one year ahead strongly influences the actual year-on-year inflation rate. Obviously less influence on actual inflation that comes from inflation expectations of the real economic sector in comparison to the financial sector could be attributed to both economic and psychological phenomenon of downward price rigidity in the internal environment of companies, which adjust with a delay to changes in market prices. The success of inflation targeting soundly depends on the way the Central Bank manages the formation and influences the movements of inflation expectations of market participants, especially banks which could be seen as professional forecasters.

Determinants of safe food handling practice among food handlers in food establishments, Yeka sub city, Addis Ababa, Ethiopia

BackgroundPoor food handling practice is a key cause of foodborne diseases notably in developing countries like Ethiopia. This study aimed to assess food safety knowledge, attitude and practice of food handlers, establishments’ status and determinants of safe food handling practice. MethodsThe study utilized institution based cross-sectional study among food handlers working in Cafeterias, Restaurants and Hotels in Yeka sub city, Addis Ababa. A total of 284 food handlers: 69 from Cafeterias, 89 from Restaurants and 126 from non-stared Hotels were enrolled using stratified random sampling technique. Data were collected in observational checklist and through structured-questionnaire via face to face interview. A binary and multivariate logistic regression was used and adjusted for cofounders. A P-value of less than 0.05 was considered statistically significant. ResultThe present study has indicated 42.6% of food handlers had good food handling practice. Food handling practice in the establishments were significantly associated with sex, monthly income, availability of functional pipe water supply, availability of soap and/or detergents and presence of insects or rodents. ConclusionFood handlers in the study area were executing in a poor food handling practice, as most of them were not knowledgeable as needed. In fact, revising the salary of food handlers based on their work load could be valid, as there is existing worldwide economic inflation. Likewise enhancing pipe water availability in the food premises and dispatching sufficient soaps and detergents coupled with eradicating ubiquitous insects and rodents are key.

Determinants of Interest Rate Spread of Nepalese Commercial Banks

This paper has analysed the determinants of interest rate spread (IRS) of Nepalese commercial banks. The panel data of 25 commercial banks from 2013/14 to 2020/21 was used for the analysis. The study used return on assets (ROA), management efficiency (ME), capital adequacy ratio (CAR), assets quality (AQ), and credit risk (CR, and operational efficiency (OE) as the bank specific determinants and inflation (INF) and growth rate of gross domestic product (GDP) as the macroeconomic determinants. Using the random effect model, the paper finds ROA, CR, ME, and OE as the major bank specific determinants and INF and GDP as the major macroeconomic determinants of interest rate spread. Similarly, the role of ROA, CR, INF and GDP was found to be positive while that of ME and OE was discovered as a negative role in determining IRS of Nepalese commercial banks. The findings of this study can be useful in formulating policies on the spread rate of interest.

The Impact of Bank-Specific and Macroeconomic Variables on Commercial Banks Profitability in Nepal

This study aims to evaluate the impact of bank-specific and macroeconomic variables on commercial banks' profitability in Nepal. The study uses panel data of twenty-four commercial banks from 2011/12 to 2019/20. The study finds that bank-specific variables such as capital adequacy ratio, non-performing loan, and Cost of funds negatively affect banks' profitability (ROA and ROE). In contrast, interest rate spread, total investment to total asset, and net interest income to total asset have a positive effect. Regarding macroeconomic variables, gross domestic product (GDP)positively impacts banks' performance, while inflation (INF) has a negative impact. The study concludes that the macroeconomic variable INF is the primary determinant of banks' profitability because it also adversely influences GDP.

Macroeconomic Factors and Current Account Deficit in Indonesia

This study aims at investigating the relationship between macroeconomic factors and Indonesia's current account deficit (CAD). This study employed time series data with up to 42 observations from 1980 to 2021. The vector error correction model (VECM) was implemented for data analysis because it can dynamically describe the short and long-term impacts of macroeconomic variables on the CAD. It is considered that macroeconomic variables that have the potential to determine the CAD are fiscal balance (FB), growth of GDP (GRGDP), inflation (INF), a real effective exchange rate (LNREER), terms of trade (TOT), and trade openness (TRADOP). The findings show that FB has no effect on the current account in the short and long-term. Meanwhile, lag 1 GRGDP, lag 1 INF, and lag 1 LNREER has a positive effect on the current account. On the other hand, TRADOP has a negative effect on the current account at lag 1 and TOT has a long-term positive effect. This study suggests that the government should optimize and synchronize economic policies and efforts to improve the current account performance.

Potency of Fiscal Variables in Inf lation Variations in Sri Lanka

Although the monetary policy impact on inflation is deliberated intensively in economic literature, the fiscal policy impact has not gained much interest, particularly in the developing countries. The later issue is theorised as the fiscal theory of price level. This article examines the potency of fiscal factors relative to the money growth in inflation in Sri Lanka for an extended period 1965–2018, and also for the post-reform period 1977–2018. The inflationary impacts of public debt, budget deficit and public expenditure, in association with money growth and a few control variables are assessed rigorously. The results of the vector autoregression model estimations involving different combinations of these variables reveal that fiscal policy instruments are, in general, inflationary while no significant impact of money growth on inflation is found. Besides, the analyses of impulse response functions and variance decomposition of inflation corroborate that the external debt, budget deficit and public expenditure are potent factors amplifying inflation. The impacts of money and control variables are trivial. These findings are invariant over the samples and justify that an active fiscal and a passive monetary policy are operative. Managing the budget deficit and growing dependence on public debt is a critical policy issue in Sri Lanka.JEL Codes: E31, H63, C32

Aplicação da VECM para Medir o Impacto Econômico do Turismo em São Tomé e Príncipe Integrando Variáveis Macroeconômicas

This quantitative research aims to analyze the long-run relationship and causality between economic development, tourism, and other macroeconomic variables in the context of Sao Tome and Principe (STP). First, the Augmented Dickey and Fuller (ADF) and Phillips and Perron (PP) unit root test is applied, followed by the Johansen cointegration test and the Vector Error Correction Model (VECM). Gross domestic product (GDP), tourism receipts (TR), foreign direct investment (FDI), Unemployment rate (UR), and Inflation (INF) are the variables used in the econometric model from 1993 to 2019. The findings indicate a positive long-run relationship between GDP and the explanatory variables TR and FDI. It also indicates a negative long-run relationship between GDP and the variables INF and UR. In terms of short-run causality, the results reveal a unidirectional causality running from GDP to FDI and INF and bidirectional causality between TR and INF. Furthermore, it suggests a long-run unidirectional causality from all independent variables to GDP. This is the first quantitative study that presents a new perspective of tourism in the context of STP by applying the VECM and integrating several macroeconomic variables.