Low Inflation Rates Research Articles

Does Monetary Policy Stabilise Food Inflation in India? Evidence From Quantile Regression Analysis

AbstractThis study examines the role of monetary policy shocks on food inflation in India, spanning from January 2009 to December 2019. Utilising quantile regression analysis, we find that contractionary monetary policy stabilises food inflation across the quantiles. However, exchange rate and transportation cost play a substantial role in promoting food inflation in lower, middle and all quantiles. Our study also reveals that monetary policy transmission through exchange rate and asset price channels increases food inflation across all quantiles. In contrast, bank credit and interest rate channels reduce it in lower and median quantiles, that is, at lower rates of inflation.

Causal Relationship between Inflation and Unemployment in Indonesia 1986-2018: A Phillips Curve Analysis

Inflation and unemployment are closely watched indicators in the economy of a country. The consumers in a goods market are willing to get the goods and services at a relatively lower price, or in other words, they expect a low inflation rate. However, if the inflation rate is low, the incentive of producers to produce more is low, and employment will not happen. Therefore, there are trade-off between inflation and unemployment. This phenomenon is called the Phillips curve. This study aims to analyze the causal relationship between inflation and unemployment in Indonesia. We use inflation rate and open unemployment rate from 1986-2018 collected from Statistics Indonesia (bps.go.id). We employed the Granger causality method and found that there is no causal relationship, either one-way or two-way, between inflation and unemployment. Further, we analyzed using simple linear regression and found that inflation significantly affects unemployment and vice-versa.

Heterogeneity Effect of Central Bank Independence on Inflation in Developing Countries

This research investigates the relationship between central bank independence and inflation for 37 developing countries during the period from 1972 to 2019. Given that most developing countries experienced high inflation, many opted for central bank independence to enhance their focus on inflation. Central bank independence reforms were anticipated to create a higher level of independence, which would result in a low inflation rate. We employed pooled least square with the assumption of homogeneity of co-efficients; the result showed no significant relationship between central bank independence and inflation. We checked the homogeneity assumption of the panel by applying Chow and Roy–Zellner tests; results showed that the model was not homogeneous. Furthermore, we performed the panel heterogeneity model with the pooled mean group estimator which indicated that a reverse relationship exists between central bank independence and inflation. This finding is robust as we split the sample into two groups: moderate and high inflation countries; the negative relationship between those variables still exists.

Potential growth and natural yield curve in Japan

We estimate the yield curve gap in Japan and examine whether it has contributed to the sustained low growth and low inflation rates observed since the beginning 2000s. We use a semi-structural empirical model that generalizes Laubach and Williams’ approach, considering the entire range of maturities of the interest rates and dealing with the issue of mixed frequency sampling. An important result is that, even in the absence of a zero lower bound, monetary and fiscal policies proved ineffective in bringing the Japanese economy out of a situation of prolonged stagnation and low inflation. This happened even when the yield curve moved below its natural level.

REVISITING INFLATION-GROWTH NEXUS: AN ENDOGENOUS GROWTH MODEL WITH FINANCIAL FRICTIONS

This paper presents a new explanation of why the growth effect of inflation reported in the literature is an inverted-U relationship with considerations of lower bound on bank lending rates. We integrate a non-zero lower bound on the lending rate in the discussion and show the effect of inflation on optimal bank loan contracts. This paper believes that informational friction is a source of the negative relationship between inflation and growth when the loan rate constraint is non-binding. Besides, it finds out that once this loan rate constraint is binding, increasing inflation can reduce the real cost of financing capital investment and then contribute to growth. This paper also proves that the non-zero lower limit can only be reached at the low rate of inflation. It implies developing countries that are more likely to have low capital conversion efficiency and high transaction cost would hold a higher inflation-growth nexus than developed countries.

The DSGE model and the optimal monetary rule

Inflation targeting policy is a monetary policy framework that ensures a low inflation rate, close to an objective that is usually 2%. Due to deterioration of the relationship between monetary variables and aggregates in many economies, this policy is emerging as a new monetary strategy. Bank Al-Maghrib is part of this process, and thus Morocco has taken the first step in this direction by adopting a more flexible exchange rate regime. Nevertheless, the transition to this regime requires knowledge of the transmission of the interest rate on inflation and output.
 In this article, we determine the optimal monetary rule to accomplish Morocco's transition to inflation targeting. We evaluate this rule by first constructing a DSGE model for a closed economy and then estimating through Bayesian estimation four sub-models (four monetary rules).
 The comparison between models shows that the rule associated with inflation and output targeting with interest rate smoothing allows for better transmission of monetary policy. It is therefore the optimal monetary rule for the eventual implementation of inflation targeting policy in Morocco.
 Keywords: inflation targeting, credibility, economic growth, Neo Keynesian model, monetary rule.

The Unavoidability of Low Inflation–Low Output Traps

Abstract Since the collapse of the Bretton Woods monetary system, the monies of the developed world have been unbacked by any formal promise of convertibility. Yet, inflation has typically undershot, not overshot, central bank targets over the past couple decades. The low, while generally positive, inflation rate has (more arguably) been associated with low output and low growth. In this article, I consider these observations through the lens of a class of representative agent rational expectations models with nominal (price-setting) frictions and the possibility of firm entry/exit. I show that for any level of nominal frictions (no matter how small) and for any monetary policy rule that satisfies a set of weak restrictions, there is a large set of equilibria that exhibit permanently low inflation, low output, and low nominal interest rates. These equilibria can only exhibit positive long-run inflation if growth is low and the specification of nominal frictions (i.e. the Phillips curve) takes an unconventional but nonetheless empirically plausible form.

Bagaimana Utang Mendorong Terjadinya Krisis? Solusi dari Sistem Keuangan Islam


 
 
 Interest-based debt is prohibited in Islam because of its exploitative nature. The main purpose of implementing Islamic sharia in financial activities is to eliminate injustice and inequalities in financial transactions. The main characteristic of Islamic finance is the prohibition of charging interest, also known as usury. The findings in this study that debt that was continuously extended during the crisis did not have the effect of restoring the economy to normal conditions, instead providing an impetus for a continuous crisis. Interest-based debt is a dangerous weapon to exploit and extort poor people who need venture capital. Furthermore, the high interest in using interest-based debt is exploited by the surplus capital to increase their wealth. Interest-based debt with high costs weakens the economy, although from a capital turnover perspective it looks bigger. The solution of the Islamic financial system with an interest-free loan scheme (Qardhul Hasan) is an alternative that has been proven to provide an incentive to increase welfare. Qardhul Hasan with a low cost becomes effective in increasing output, absorbing employment, and maintaining a low inflation rate without creating negative side effects in the economy.
 Keywords: debt, interest, crisis, qardhul hasan

Heterogeneity, convergence and imbalances in the Euro area

The inception of the euro allowed countries from the periphery to experience a large fall in the cost of borrowing. Lower nominal rates were only partially offset by lower inflation rates. We rationalize this real interest rate reversal using a two-region model of a monetary union where, consistently with real interest rate data, discount factors are initially heterogeneous, leading the periphery to be borrowing-constrained. We model the inception of the euro as a partial convergence process in inflation rates and a slow rise in the discount factor of the periphery, relaxing the borrowing constraint. This simple set-up accounts for the bulk of post-euro fluctuations in both regions. In particular, it replicates very well the observed joint dynamics of current accounts and terms of trade.

Estimation of Inflation Threshold of Indonesia and Its Effect on Economic Growth Periode 1981-2019

Sustainable economic growth with a low and stable inflation rate is one of the goals of macroeconomic policy in improving people's welfare. High inflation can be detrimental to economic growth in the medium and long term, while a certain level of inflation is needed to move the economy. Therefore, the question arises about the level of inflation that does not have a negative impact on economic growth. This study aims to estimate the inflation threshold level and identify its effect on Indonesia's economic growth 1981-2019. The research begins by determining the best model among the models that regress inflation on economic growth with quadratic regression, Hansen's (2000) threshold regression, and Mubarik's (2005) threshold regression (2005). The best model is the Mubarik threshold regression model (2005) with an inflation threshold of 6.85 percent. Mubarik's (2005) threshold regression analysis was reused in the model involving the FDI variable, the inflation threshold was 7.11 percent, and FDI had a positive effect. Inflation below the inflation threshold encourages economic growth, while inflation above the inflation threshold is detrimental to economic growth. The result of the estimated threshold level is higher than the inflation target by BI, so that inflation targeting can be increased.

EFFECT OF INSUFFICIENT CURRENCY IN CIRCULATION ON THE RATE OF INFLATION AND UNEMPLOYMENT IN NIGERIA: THE BUHARI’S ADMINISTRATION EXPERIENCE

This study investigated the effect of insufficient currency in circulation on the rate of inflation and unemployment in Nigeria: The Buhari’s Administration Experience; using annual time-series data ranging from 1985 to 2020. In achieving this task, the study was disaggregated into two models: model 1 utilizing Vector Error Correction Model to analyse the relationship between fiscal variables (government total expenditure, government tax revenue, and export) and unemployment rate. It was revealed from the unit root of Augmented Dickey-Fuller test that none of the (fiscal) variables was stationary at level, but they were all stationary after 1st Differencing. This made it necessary for the study to apply Johansen co-integration test which the estimated result indicated 1 co-integration equation as evidenced by Trace statistic. This also, necessitated the application of Vector Error Correction Model (VECM), and it was observed that it took 61.71% annual speed of adjustment towards long-run equilibrium from short-run disequilibrium for unemployment rate to return to equilibrium after a shock to fiscal variables. The results further explained that government total expenditure, and government tax revenue, had negative and insignificant impact on unemployment rate respectively, thereby reducing unemployment rate. Similarly, the estimated result indicated that export had positive impact on unemployment thereby increasing unemployment rate within the period under study. Similarly, in analysing monetary variables (money supply, exchange rate and prime lending rate) in model 2: Phillip-Peron unit root test was conducted and it was confirmed that the variables were of mixed order of integration which necessitated the employment of ARDL technique. The ARDL bounds testing result revealed that a long-run relationship existed between monetary variables, and inflation. It was found, in the long-run, that money supply caused inflation rate to rise. More so, the result further revealed that present level of exchange rate decelerated inflation rate in both long-run and short-run. While, it was further observed that the one-year lag and two-year lag of exchange rate increased rate of inflation in both log-run and short-run respectively. The estimated result further revealed that the present level of prime lending rate minimised the rate of inflation in the long-run and short-run. Whereas, similar results were further confirmed in the one-year lag and two-year lag that prime lending rate reduced inflation rate in both log-run and short-run. As a result of these findings, with respect to model 1; the study recommended that government should maintain the level of its expenditure and tax revenue as this reduced unemployment rate, and it should lower trade costs so that demand for labour would increase in the export industry, this would make aggregate unemployment rate to reduce. With respect to model 2; it recommended the adoption of contractionary monetary policy that would minimise the amount of money supply that caused long-run effect on inflation in the system. Furthermore, there should be proper maintenance of fixed exchange rate policy that will make exchange rate regime overcome non-military forces of demand and supply in exchange rate market, this will help maintain low rate of inflation.

INTERNATIONAL TRADE AND ECONOMIC DEVELOPMENT IN NIGERIA

The benefit of international trade had not been noticed in the economic growth of Nigeria because some of the goods imported into the country were those that can cause damages to local industries by rendering theirs products inferior and being neglected , thereby reducing the growth rate of output of such industries which later spread to aggregate economy. The work investigated the extent to which international trade impacted global economic development with particular reference to the Nigerian economy between 1986 and 2018. The data employed for this study are basically annual time series data covering 1986-2018. The data were obtained from World Bank data outlook, and central bank of Nigeria statistical bulletin. This study adopts the statistical method of method of multiple linear regression approach using ordinary least squares to examine the relationship between RGDP as dependent variable and degree of openness, foreign exchange rate and interest rate as independent variables. The paper revealed that relationship exist between international trade and economic growth, and that while some components of international trade exerted positive and significant effect on growth, INTR exerted positive but insignificant effect. The result further shows that all the regressors except interest rate were statistically significance at 5% level of significance. Some policy recommendations which would be helpful and applicable to the Nigerian economy were suggested. For the degree of openness, Nigeria should adopt more policies on trade liberalization like reducing non-tariff barriers, reducing barriers, eliminating quotas that will enable the economy to grow at a spectacular rate. The finding with respect to exchange rate implies that the policy makers should adopt long term policies because in the long run, a strong currency depends on economic fundamentals. To have a strong exchange rate, countries will need a combination of low inflation rate, productivity growth, economic and political stability.

Estimating Upward Bias of Japanese Consumer Price Index Using Engel's Law

The Japanese Consumer Price Index (CPI) is considered to be upwardly biased. This paper estimated the Engel curve based on National Survey of Family Income and Expenditure data to measure the bias. The estimated bias for the period 1989 to 2004 was 0.53 percentage points per annum. Correcting the bias led to a lower inflation rate of 0.14 percent per year, against the official inflation rate of 0.65 percent during the period. A demographic analysis showed that a household with a non-working spouse faced a larger bias suggesting that the opportunity cost of shopping determines the size of the bias.

Evaluating Risks of Hyperinflation Post COVID-19 Pandemic

The COVID-19 pandemic represented a logical Catch 22 scenario in the world of financial economics. The pandemic saw a sudden and unanticipated plunge in Money Velocity, Consumer Confidence, Employment, and Industrial Output. At the same time, due to fiscal and monetary stimulus measures in the form of quantitative easing and stimulus checks, the US saw an unanticipated rise in its Money Stock. With new waves of the virus and long-lasting labor shortages, a possible surplus liquidity scenario might arise. The United States faces a potentially high inflation rate scenario in such a case. This study draws insights from similar historical precedents and aims to model inflation as a function of macroeconomic variables: unemployment, money stock, money velocity, and industrial production. The study concludes that current percentage inflation already exceeds forecast estimates in the absence of a pandemic scenario through an OLS model. Recognizing transmission lags from exogenous variables to the target variable, an ARDL model is employed, which can incorporate differing leads/lags. Both the models predicted a lower inflation rate in the absence of Pandemic and Government Intervention than the actual inflation rate. This was deemed prima facie evidence that inflationary pressure from an increase in Money supply overpowered decreases in employment and money velocity. It was posited that when the economy reopens, this effect may further worsen due to the theoretically direct relationship between velocity, employment, and inflation. The study cautions runaway inflation, akin to Latin America’s failed trials in Modern Monetary Theory type policies and many instances enshrined in history.

Do consumers actually monitor the inflation rate? Evidence from New Zealand*

In this note, we study whether consumers actually monitor the inflation rate, an assumption that is often made in studies on inflation perceptions and expectations as well as policy analyses. We analyse this question using unique representative survey data on New Zealand collected in 2016. In this case of an inflation targeting country and an environment of low inflation rate, we find that only about one third of the population says that it monitors the inflation rate. These are people characterised by a significantly higher degree of objective and subjective economic knowledge as well as interest in monetary issues.

The Determining Factors in Influencing Customer’s Loyalty: A Financial Approach

The research aims to evaluate customers’ loyalty to Sharia banking related to internal and external factors of the financial performance approach. A loyalty is depicted with Third-Party Savings deposited in Sharia banking. This study employed Autoregressive-Distributive Lag (ARDL) to explore the short period and the long period from variables’ relationships. The findings reveal that profit-sharing, administration fee, the interest rate of a conventional bank, inflation, and the total number of accounts (NOA) had significant effects on Third-Party Saving (TPS). They imply that the customer’s loyalty is internally established if there is a higher profit sharing in savings, lower administration fees, and total supplementary accounts. Yet, it is formed by external incentives, i.e., a lower interest rate of conventional banking and inflation.

PENGARUH INFLASI DAN NILAI TUKAR RUPIAH TERHADAP PERGERAKAN HARGA SAHAM PADA INDEKS SAHAM SYARIAH INDONESIA (ISSI)

To move towards a more advanced economy, a sufficiently high economic growth must be supported by a low inflation rate and a stable exchange rate. Meanwhile, the main source of the increase in the financial balance is estimated to still be contributed by an increase in foreign direct investment (FDI). The development of the Indonesian Islamic capital market began with the issuance of Islamic mutual funds in 1997. However, the development of the Islamic capital market until the end of 2015 had not yet reached a significant share in the capital market industry. The approach used in this research is a quantitative approach. The statistical test used in the analysis is the multiple linear regression method. Inflation has a negative effect on the Indonesian Islamic stock index. The significant value is 0.0000 while the rupiah exchange rate has a positive influence on the Indonesian sharia stock index. The significant value of the rupiah exchange rate is 0.0006. The result of this test is that the probability value of F is less than , which is 0.000000 < 0.05. The conclusion of this study is that the inflation rate partially has a significant effect on stock price movements on the Indonesian Sharia Stock Index (ISSI), the rupiah exchange rate partially has a significant effect on the Indonesian Sharia Stock Index (ISSI) and simultaneously, the inflation rate and the rupiah exchange rate. significant effect on the Indonesian Sharia Stock Index (ISSI).

Legal Mechanisms for Adapting Contracts to Changing Economic Conditions in Professional Dealings

Abstract In accordance with the principle of freedom of contract, expressed in Article 3531 of the Civil Code, the parties may shape the legal relationship at their own discretion, inter alia, by including valorisation clauses. Many years of market stabilisation, especially the low inflation rate, led to almost unreflective contracting in business. A number of contracts concluded in recent years do not contain any mechanisms that would allow a change of remuneration due to the change of economic conditions, including in particular, increase of prices. Currently, due to the unstable economic situation and constantly rising inflation, indexation clauses should be widely used to protect parties’ interests. This article focuses on such clauses and the options available to the contracting parties in the absence of incorporation of such reservations in contract. The first part of the article discusses the issue of the indexation clause itself, followed by the issue of protecting the parties from potential losses caused by uncertainty of trade. The following part of article will focus on the secondary action needed to mitigate losses caused by market instability and lack of prior inclusion of indexation clauses in the concluded contract.

Impact of Inflation on Gross Domestic Product Growth in Ghana

This paper examines the impact of inflation and other macroeconomic variables such as physical capital, government expenditure, and money supply on GDP growth in Ghana. The study obtained data from the World Development Indicators for the period 1986-2018 and employed vector autoregressive (VAR) models for the analysis. The results showed that general inflation, low inflation rates, physical capital, and money supply have positive, statistically, significant, effect on GDP growth, while, government expenditure and high inflation have negative, statistically significant, effect on GDP growth for the period studied. The study concludes that GDP grows positively at a general level of inflation and low rates of inflation but grows negatively at a high rate of inflation in Ghana. The study, therefore, recommends that government should implement monetary and fiscal policies that will help keep inflation rates low and redirect her spending to the productive sectors in the country to enhance GDP growth.

Макроэкономическая стабильность: теория и реальность

This article explores the concept of macroeconomic stability originated from the theory of general economic equilibrium (GEE) by L. Walras. Modern macroeconomic models that do not contradict the GEE, a implement the principles of consistency of micro- and macroeconomic analysis, the interrelation of markets, and the effectiveness of market mechanism. Economic fluctuations generated by shocks are in dialectical unity with the state of equilibrium. The aim of macroeconomic policy is to maintain equilibrium (macroeconomic stability) through inflation targeting and effective public debt management. Within the framework of this policy a number of goals are met including the control over inflationary expectations, strengthening confidence in the central bank, and overcoming inflation. However, low inflation rates can produce liquidity traps, thus causing a need to adjust monetary policy and develop its new instruments. At the same time, the global crises of the 21st century, the Great Recession of 2008 and the COVID-19 pandemic, prompts to re-evaluate the contradictions between the theoretical concept of equilibrium and the real state of the economy, as well as measures needed to stabilize it during a recession. The policy of overcoming the crisis in 2020 includes large-scale discretionary fiscal and monetary stimulus according to Keynesian recipes, in the absence of which the loss of jobs, closure of enterprises, and lack of financial stability are inevitable. The gap between theory and reality, as it happened during the Great Depression almost a hundred years ago, once again raises the questions of further development of macroeconomics. The article may be of interest to teachers and students interested in the prospects for the development of scientific knowledge in this area.