Low Inflation Rates Research Articles

Unemployment and the Demand for Money

We develop a dynamic general equilibrium model to analyze the relationship between monetary policy, money demand, and unemployment. Our model succeeds in replicating the empirical fact of a downward sloping Phillips curve for low inflation rates and an upward sloping curve for high inflation rates. The reason is that low inflation rates make saving, as opposed to consumption, more attractive. Less consumption is associated with less output and therefore higher unemployment. To the contrary, when inflation exceeds a certain threshold, money is too costly to hold, which results in a decrease in output and an increase in unemployment.

More effective than we thought: Central bank independence and inflation in developing countries

This study examines the effect of legal central bank independence on inflation in developing countries. In spite of the policy consensus suggesting that central bank independence is an effective tool to control inflation, the evidence is still limited, particularly for developing countries. Using a novel dataset, we analyze the effect of central bank independence on inflation for a sample of 118 developing countries between 1980 and 2013. We find that higher central bank independence is associated with lower inflation rates. This effect on inflation is stronger the more democratic a country is, but it is also present in non-democratic countries. Our results are robust to different specifications and methodologies. Furthermore, we find that all dimensions included in the measurement of central bank independence (objectives, personnel, policy, and financial independence) contribute to curb inflation. Our results shed light on which types of reforms may be more effective at fighting inflation in developing countries.

Risk of Increase in Prices of Performance in Indian Construction Industry and Sufficiency of Contractual Provision to Mitigate the Same in EPC and Item Rate Contract

Escalation is change in price levels driven by underlying economic conditions. From construction point of view, it is increase in price of cement, steel and other construction material used in construction industry for a defined period of project. Escalation in the construction industry in recent years has been extremely volatile and same scenario is expected to continue in future and also due to tremendous competition for resources like material and skilled workers which are the key factors to complete construction projects. Many contract these days are fixed price contract and it is expected that the risk of price escalation should be taken up by the contractor. It is very difficult for the contractor to take whole risk and in many cases quality delivery becomes difficult. Even the provision of escalation in contract does not cater all the aspects or the escalation in prices of work. Whatever the escalation clause is used outside India, cannot be directly applied in Indian scenario because of low inflation rate present there as compared to India. Therefor in present study, an attempt has been made to study and analyze the volatility of price. The objective of this research is to Study the escalation clauses presently used in construction contracts adopted by various Government departments/ agencies in India and to study the provision of existing contract & its sufficiency to cater the risk arising, its adequacy & coming up with proper solution so that risk can be mitigated and also to study how far cost escalation has an impact on the outcome of construction projects. For this, data has been collected from Economic advisory of India and Labour Union for estimation of percentage of price volatility of construction material and labors from 2012 to 2018 in the interval of 6 months. Years showing maximum fluctuation have been highlighted along with efficiency of present escalation clause with an example. Questionnaire survey will be conducted to highlight important factors related to escalation and come up with proper solution to mitigate the risk for above. And finally a case study will be conducted for the application of above solution.

Effects of Monetary Asset- Price Transmission on Investment and Inflation in the Euro Area

Since the onset of the financial markets’ crisis in late 2008, the Eurozone has been subject to rather volatile headline inflation, occasionally even turning into (an admittedly modest) deflation. As eventually, conventional monetary policy seemed to be exhausted, the European Central Bank (ECB) resorted to unprece- dented unconventional measures. In 2010, it launched a first gov- ernment bond purchasing programme, which was followed by a series of different programmes, swelling its balance sheet to c. €4.7tn as per May 2019. The induced asset-price-inflation in con- junction with a continuous and persistently low HICP inflation rates inevitably raises the question how effective monetary trans- mission – particularly via asset-prices – (still) is.
 This contribution will investigate the effects of monetary asset- price transmission on investments and inflation. First, it analyses the reliability of stock markets as an indicator for firms’ investment, while emphasising the importance of uncertainty. Sec- ond, the paper examines how rising stock prices affected firms’ balance sheet and lending. Further, it provides an explanation as to why monetary policy failed to amplify lending in peripheral mem- ber states and why it had a comparatively low effect on borrowing costs in these regions. Third, it scrutinises the implication of an output gap, which monetary policy seeks to create, on different inflation parameters. Thus, the paper illustrates why the effects on HICP-inflation are less pronounced compared to other inflation measures.

Assessing the Access to Finance by Small and Medium-Sized Enterprises from Financial Institutions in Blantyre City-Malawi

SMEs are an integral part of the economy in Malawi. The paper assesses the access to finance by SMEs from financial institutions in Malawi by highlighting the obstacles that SMEs face in their effort to raise finance. The quantitative research approach was adopted in conducting the study. Questionnaires were circulated to 100 SMEs in the City of Blantyre-Ginnery Corner and the SMEs were selected using the random sampling techniques. The following major findings were revealed.  There are financial institutions that are willing to provide funds to SMEs for growth and expansion but most Malawian SMEs fail to meet the lending requirements demanded by these institutions. Chief amongst these is the inability by most SMEs to provide collateral or security and audited financial statements for their businesses. On the other hand, for the small number that is able to access finance, they are faced with high interest rates which make it very difficult for them to grow. The other constraints include lack of finance, stiff competition in the sector, high taxes and corruption and bribes to access contracts. Another interesting revelation is that SMEs relationship with their bankers is not healthy. Most SMEs consider their relationship to be average despite recent focus by the banks on SMEs businesses. The study recommends the enforcement of the Credit Reference Bureau Act 2010 to help financial institutions identify and lend to creditworthy SMEs; banks should soften their adverse risk attitude of over reliance on collateral rather than on business cash flows. The government should also consider provision of tax incentives to banks’ lending to SMEs; stabilisation of the economy to achieve lower inflation and interest rates and formulation of government policy on SMEs that would compel Ministries, Departments and Agencies to allocate a proportion of contracts to SMEs in any tender. Lastly, financial institutions should revisit their approach to SME banking.

Interplay of elastic instabilities and viscoelasticity in the finite deformation of thin membranes.

Pneumatic structures and actuators are found in a variety of natural and engineered systems such as dielectric actuators, soft robots, plants and fungi cells, or even the vocal sac of frogs. These structures are often subjected to mechanical instabilities arising from the thinning of their cross section and that may be harvested to perform mechanical work at a low energetic cost. While most of our understanding of this unstable behavior is for purely elastic membranes, real materials including lipid bilayers, elastomers, and connective tissues typically display a time-dependent viscoelastic response. This paper thus explores the role of viscous effects on the nature of this elastic instability when such membranes are dynamically inflated. For this, we first introduce an extension of the transient network theory to describe the finite strain viscoelastic response of membranes, enabling an elegant formulation while keeping a close connection with the dynamics of the underlying polymer network. We then combine experiments and simulations to analyze the viscoelastic behavior of an inflated blister made of a commercial adhesive tape (VHB 4905). Our results show that the viscous component induces a rich spectrum of behaviors bounded by two well-known elastic solutions corresponding to very high and very low inflation rates. We also show that membrane relaxation may induce unwanted buckling when it is subjected to cyclic inflations at certain frequencies. These results have clear implications for the inflation and mechanical work performed by time-dependent pneumatic structures and instability-based actuators.

Mortgage as an Available Source of Credit Resources for Investment Financing in 2019

The subject of the researchis the availability of mortgage as a credit resource for investment funding. The relevance of the problem is due to the development of the mortgage credit lending in the country. The policy of the Central Bank of Russia (CBR) and the Russian Government aimed at combating inflation and planned reduction of the key rate created favorable conditions for establishing acceptable bank rates on mortgage loans, which significantly raised the mortgage demand over the past few years. The research shows that Russian commercial banks have reduced mortgage rates and are offering refunding of previously issued mortgage loans, which demonstrates the confidence of the banking sector in the government and economic stability at the macro level. At the same time, the easy access to home mortgage lending can lead to a “financial bubble” problem on the Russian banking market and, moreover, to deterioration of the borrowers’ solvency, and, therefore, loan default.The purpose of the researchwas to examine the current affordability of mortgage as a source of credit resources for investment funding and develop recommendations for improving this process. The paperconcludesthat the government policy of economic and financial stabilization through inflation combating measures and maintaining the key rate by the CBR at the level acceptable for economic growth should be continued. At the same time, the transition from the participation finance to the project-tied system of housing construction financing can possibly increase the loan interest burden on developers and affect the price per square meter for the final buyer. The main factors contributing to the reduction of mortgage rates are the planned reduction of the key rate by the CBR and low inflation rates, the program of the Government subsidies to the mortgage market as well as the increased supply of low-income housing by developers.

Observed Inflation‐target Adjustments in an Estimated DSGE Model for Indonesia: Do They Matter for Aggregate Fluctuations?

This paper investigates the role of observed official inflation‐target adjustments in aggregate macroeconomic fluctuations in Indonesia, using an estimated Dynamic Stochastic General Equilibrium model. The paper finds that these adjustments or shocks play a non‐trivial role in the fluctuations of inflation and nominal interest rate in Indonesia. Output fluctuations, however, are virtually unaffected. A counterfactual exercise shows that a faster disinflation policy, through an immediate decrease in Bank Indonesia's inflation target, may have resulted in a lower average inflation and nominal interest rate, with virtually no output loss. The paper also provides additional insights on the contribution of various shocks in driving aggregate fluctuations in Indonesia. Technology and monetary‐policy shocks are found to be the main driving factor for both output and inflation fluctuations. Movements in the nominal interest rate are mostly driven by preference and risk‐premium shocks, with inflation‐target shocks playing a larger role in the longer run.

Taxation and Inflation in Nigeria: An Empirical Analysis

This study examines the role of taxation as a tool for addressing the challenges of inflation in Nigeria. Data for this study were gathered from Annual Abstract from the Office of National Bureau of Statistics and the office of the Federal Inland Revenue Service for a period of twenty years (1994 to 2014). The data gathered were thereafter analyzed using the error correction model (ECM) and from the analysis the paper revealed that all the variables (companies income tax, value added tax and custom and excise duties) had a positive and a non-significant relationship with inflation. However, from the conclusion the paper recommended that the government and policy makers should formulate an active tax policy to curb the issue of inflations in Nigeria and there should be a review of the periods where Nigeria witnessed lower inflation rates to see whether or not taxation (indirect taxes) played a role in ensuring the low inflation rate and then the successive introduction of the policies as it relates to taxation in the subsequent period. Keywords : companies income tax, value added tax, custom and excise duties, inflation DOI : 10.7176/RJFA/10-4-11

Economic Stagnation in Emerging Market Countries: Should Justify Keynes's law

This study aims to determine the aggregate demand factors that affect economic stagnation in middle-income emerging market countries, and whether Keynes's law can be a solution to solve the problem with increase demand. Using panel data from official sources such as the World Bank, several factors were tested to determine the effect on economic stagnation, at the 2010-2015 and 2010-2016 periods. By employing panel data modelling (with fixed effect model), the findings suggest that the decrease in household consumption, weak foreign investment, inefficient government spending and decreased export competitiveness have a significant positive effect on economic stagnation, while a low inflation rate has an insignificant effect on household consumption, as well as high lending interest rate have an insignificant effect on the decrease in the inflow of foreign direct investment. Therefore, Keynes's law must be applied appropriately by increasing aggregate demand to encourage declining economic growth through government interference.

Bank Loan, Inflation, and Farmers Welfare: Data Analysis by Province in Indonesia

The effects of bank loans and access to formal financial institutions on rural economic growth and farmers welfare in all provinces in Indonesia have not been previously comprehensively documented with accurate, scientific methodology. This study examines the relationship of bank loans to the Farmers Terms of Trade and also provides a comprehensive analysis on some control variables such as inflation and agricultural sector productivity. The results show that bank loans do not significantly affect the welfare of farmers. Inflation and farmers? welfare have an inverted U shape pattern and relationship which indicates that while low inflation rates are positively related to farmers welfare; higher inflation rates will drastically decrease the level of welfare. The productivity of the agricultural sector affects the welfare of farmers but must be carefully interpreted in the context of the Indonesian economys condition which is currently undergoing an economic transformation

Economic stagnation in emerging market countries: should this justify Keynes's law

This study aims to determine the aggregate demand factors that affect economic stagnation in middle-income emerging market countries, and whether Keynes's law can be a solution to solve the problem with increase demand. Using panel data from official sources such as the World Bank, several factors were tested to determine the effect on economic stagnation, at the 2010-2015 and 2010-2016 periods. By employing panel data modelling (with fixed effect model), the findings suggest that the decrease in household consumption, weak foreign investment, inefficient government spending and decreased export competitiveness have a significant positive effect on economic stagnation, while a low inflation rate has an insignificant effect on household consumption, as well as high lending interest rate have an insignificant effect on the decrease in the inflow of foreign direct investment. Therefore, Keynes's law must be applied appropriately by increasing aggregate demand to encourage declining economic growth through government interference.

Monetary Policy, Growth and Employment in Developing Areas: A Review of the Literature

In this paper we review the literature on the impact that monetary policy has on growth and employment in developing countries. Much of the literature focusses on the impact of monetary policy on inflation levels and inflation volatility, and sometimes on output (GDP) levels and volatility of output. This survey of the literature on Monetary policy and growth shows that money plays a small role in developing countries and that monetary policy is not a very important influence on growth but may have some impact on inflation. Although there is much discussion about the merits of keeping inflation levels and volatility low, there is very little literature on studying the impact of low rates of steady inflation on the levels of private investment and technological change and hence on economic growth and on There is very little research about the direct links between monetary policy and The impact of growth on employment depends on what are the main drivers of economic growth and the initial state of the economy. Although growth may lead to increasing employment (formal and informal) there is little evidence showing that growth leads to an increase in decent employment.

A time series analysis of household income inequality in Brazil 1977 to 2013

Abstract This paper analyses the evolution of household income inequality in Brazil from 1977 and 2013 using Brazilian National Household Survey data at aggregated and regional levels. Four income shares quantiles are analyzed: Top 1%, Top 10%, Bottom 10% and Bottom 50%. The novelty of our study is to use time series techniques to understand the phenomenon of income inequality within this period. We use Markov-Switching Regime Change Model (Hamilton (1989)) and State Space Unobservable Model (Harvey (1990)) techniques. Both strategies suggest that income concentration periods are related to low growth rates but high inflation rates as opposed to many developed countries (Piketty and Saez (2014)). Results from Markov-switching models suggest a detection of a new regime during first decade of 2000's in poorest quantiles (bottom 10% and 50%) increasing their correspondent income shares. Moreover a regime of low shares started to prevail at the same time for Top 10% whereas for those at the Top 1% had prevailed a concentrated income share regime during eighties and nineties. We argue that Brazilian macroeconomic instability helped to produce a regime of low income shares at the bottom of the distribution. Our results suggest that recent inequality reduction in the shares of top 1% quantile can be seen as a “back to normality” instead of “a new era” whereas significant changes can be seen in other quantiles. State space models results also suggests that macroeconomic of the eighties had a severe effects on Brazilian inequality whereas the dynamics of Top 1% income shares reinforce the return of 70's level considering aggregated data. Last, our estimates unveil important regional differences in many quantiles mainly on the low brackets where poorer regions seem to have persistent income-inequality that take longer to be reduced.

Decomposing the Low PCE Inflation Rate

The current low PCE inflation rate can largely be attributed to energy, health care, and housing.

New Chicago Views on Inflation Control: The Neo-Fisherian Approach and the Fiscal Theory of the Price Level

Abstract Whereas in former times, the ‘Chicago View’ in monetary policy stood for the Quantity Theory and money supply control, it is now the centre of unconventional approaches in macro theory. The Neo-Fisherian proposal suggests, in the case of low inflation and nominal interest rates pegged to the zero-lower bound, to increase policy rates immediately to the long-run equilibrium value that corresponds to the ‘natural’ real interest rate and the inflation target. The Fiscal Theory of the Price Level believes that goods prices jump to a level that validates the long-run sustainability condition of government debt even if central banks abstain from monetising. Both views are criticized for analytical and empirical reasons. Zusammenfassung Während in früheren Zeiten die ‘Chicago-Sicht’ in der Geldpolitik für die Quantitätstheorie und das Konzept der Geldmengensteuerung stand, werden heute damit unkonventionelle Positionen in der makroökonomischen Theorie assoziiert. Der neue Fisher-Ansatz empfiehlt, im Fall niedriger Inflation und einer Beschränkung durch die Null-Zins-Grenze die Zentralbankzinsen direkt auf das Niveau anzuheben, dass durch den ‘natürlichen’ Realzins und die Zielinflationsrate bestimmt ist. Die Fiskalische Theorie der Preise behauptet, dass das Güterpreisniveau auf einen Wert springt, der die langfristige reale Tragfähigkeit der Staatsschulden sichert, selbst wenn die Notenbank keine Monetisierung betreibt. Beide Positionen können empirisch nicht überzeugen und werden einer analytischen Kritik unterzogen. JEL Classification: E52, E58

The Prospect of Dollarization in Nigeria: An Empirical Review

Dollarization has been perceived in literature as a strategy that could help emerging and developing economics achieve price stability via lower inflation rates occasioned by the adoption of a stronger currency. Supporters of dollarization also infer that the strategy has the ability to affect positively real economic variables such as growth and employment through its ability to lower interest rates, increase investment and eliminate currency risk thereby increasing international trade. In this study, we examined the effect of dollarization on selected macroeconomic variables in Nigeria from 1972 to 2017. Using simple regression models, we analysed the impact of real dollarization index on prime lending rates, inflation, unemployment, PCI, FDI, real GDP growth and total trade in Nigeria. Empirical results revealed that dollarization did not exert significant positive effect on the selected macroeconomic variables. The study therefore recommended that government should be intentional about putting measures in place to strengthen the Nigerian naira so that economic agents will see no need to hold their wealth in or transact with a foreign currency. This will discourage dollarization in Nigeria which is perceived to be a major driver of inflation in the country.

The Main Determinants of Inflation in South Africa: an Empirical Investigation

This study investigated the determinants of inflation in South Africa using quarterly data from 1970Q1 to 2015Q4. The study was motivated by recent trends in domestic inflation that has frequently been at the upper end of the target range of between 3% and 6%, and the need to guide inflation-related policy since 2008. These recent trends raised concerns regarding the effectiveness of the current monetary policy approach in responding to internal and external factors that are significant in determining domestic inflation. Using Error Correction Model (ECM) modelling techniques, empirical results revealed that inflation expectations, labour costs, government expenditure and import prices are positive determinants, while GDP and exchange rates are negative determinants of inflation. To achieve the macroeconomic policy objective of a stable and low inflation rate for South Africa, more emphasis should be placed on anchoring inflation expectations, which was found to be highly significant in determining inflation.

Adding rooms onto a house we love: Central banking after the global financial crisis

This article examines the extent to which central bankers have been willing and able to rethink their beliefs about monetary policy in the wake of the global financial crisis. We show that despite the upheaval, the core pre‐crisis monetary policy paradigm remains relatively intact: central bankers believe that they should primarily pursue price stability through targeting a low inflation rate in a transparent manner, and that they need operational independence in order to achieve this goal. In a bid to address post‐crisis conditions and maintain their credibility, however, central bankers have also layered new elements onto this paradigmatic core. We document both the resilience of pre‐crisis beliefs and the process of layering using computer‐assisted text analysis and qualitative analysis of 13,586 speeches given between 1997 and 2017 by central bankers from around the world.

English

Domestic revenue mobilization has received growing attention in recent years as it has crucial national and international dimensions for sub-Saharan African (SSA) and East African countries. In most countries, tax has not increased with increasing development expenditures. In place, the share of tax revenue to gross domestic product (GDP) is declining and countries constantly rely on foreign capital inflow as a major source of the government budget. Thus, equally tax revenue is key for economic development, the study thought to empirically examine the key determinants of tax revenue in East African countries using a novel dataset ranging from 1992 to 2015 by employing panel data cointegration approach. Panel unit root test of stationarity based on the LLC, IPS and ADF test of stationarity shows that all variables are cointegrated of order one, I(1), except the variable inflation which is stationary at level. The model estimation was done using the FGLS and the dynamic panel data GMM model. The long run estimated equation from the FGLS results indicates that per capita GDP, foreign aid, trade openness, share of agriculture, share of industry and share of services have positive contribution for tax revenue of East African countries over the study period. On the other hand, urbanization, official exchange rate and rate of inflation have negative impact on the tax revenue to GDP ratio of the region. From the short run, PVECM one period lagged tax revenue and urbanization has negative impact on the current period tax revenue while two period lagged urbanization and official exchange rate has positive impact. Thus, the robust result of the study calls for an indication that tax revenue increases under stable macroeconomic environment. Hence, East African countries should therefore better pursue economic policies that at least reveal low inflation rate and favorable trade policies. Moreover, the countries are required to set prudent macroeconomic policy environment which create economic integrations among different sectors, mobilizes domestic resource and improve external trade policies to make each country’s growth sustainable on the basis of domestic resource mobilizations. The cumulative effects lead to improved tax revenue collection of the region. Key words: Tax revenue, multivariate panel cointegration, East African countries.