Low Inflation Rates Research Articles

Investigating if the Financial Markets Performance Affects the Shadow Economy: Additional Evidence From EU Countries

The shadow economy also known as the informal or unobserved or underground economy, is a phenomenon that affects not only emerging markets and developing countries but also advanced economies. In general, this undeclared economic activity is hard to measure given its hidden nature in addition to its relation with unlawful activities. Nevertheless, apart from the legal aspects that may appear, shadow economy has negative implications in terms of tax revenue and social security contributions for the nations. To this end, an extensive literature has explored the measurement issues as well as the root causes of this phenomenon proving that the underground economy constitutes a significant portion of the overall economy in a number of countries. This paper tries to investigate the relationship between the shadow economy and the financial markets. This paper employs a number of panel data regression models to detect the association between the financial market metrics and the shadow economy (as a% of GDP). The outcome of this paper is that it finds evidence that increased market capitalization, GDP per capita and FDI as well as low unemployment and inflation rates contribute to low levels of shadow economy. This can be of value to policy makers and the competent authorities of the countries that wish to find means to contain their shadow economy.

EMPIRICAL EVIDENCE OF THE IMPACT OF INTEREST RATE, GOVERNMENT EXPENSES, MONEY SUPPLY AND REAL EFFECTIVE EXCHANGE RATE ON ECONOMIC GROWTH – THE CASE OF NORTH MACEDONIA

The main purpose of this paper is to analyze the impact of interest rates, government expenses, money supply and real exchange rates on the economic growth of the Republic of North Macedonia. A country's economic groëth refers to the growth of that country's Gross Domestic Product (GDP). The interest rate is one of the determining factors of economic groëth. Despite the challenging macroeconomic environment and other influencing factors, the Republic of North Macedonia in recent years has maintained low inflation rates and interest rates.
 Empirical analysis of the paper is based on data obtained from the Central Bank of Republic of North Macedonia on a quarterly basis for the period from 2008 to 2020. Through the use of co integration tests (Johanensen test), Granger causality test, autocorrelation test, VAR, ARCH and GARCH process, it is verified that the rate interest rate is a determining variable and has a long-term relationship with economic groëth.
 The co integration test (Johannesen test) shoës that in all equations the results are statistically significant and the variables have a long-run relationship betëeen them. Then the use of the Granger test of causality notes that money supply causes interest rate changes; they also cause a change in economic groëth.
 The unit root test is used to determine the level of integration of variables .The use of the Granger causality test then points out that the money supply causes changes on interest rate ; GDP also causes interest rate changes. The interest rate causes the change of economic groëth. Government spending causes the change of economic groëth. The effective exchange rate causes the change of economic growth.
 Evidence of co integration allowed the application of the VAR model, which enabled the identification of variables that affect economic groëth in the Republic of North Macedonia, both in the short and long term.
 In the end, all variables are tested together and it turns out that logarithmic GDP and interest rates have an impact on economic growth.
 The conclusions from the data analysis are that all variables are interrelated and have an impact on economic growth.
 Also there can be identified and other economic factors that have impact on economic growth that are not included on this paper.

PENDAMPINGAN PROGRAM PENGENDALIAN INFLASI DAERAH PADA KLASTER CABAI MERAH

Inflationary pressure in West Java province in January to March 2021 (quarter 1) was lower than October to December 2020 (quarter IV), the lower inflation rate was caused by limited demand due to the implementation of Restrictions on the activities of the Javanese Community West (PPKM) and controlling the supply of food commodities because the harvest has just begun for several food commodities, including red chili. Red chilies experienced an increase in prices due to the La Nina weather factor so that farmers failed to harvest and limited supplies. In an effort to maintain price affordability and supply availability to mitigate existing risks. Assistance is provided to the red chili cluster in the Mekar Mulya farmer group with the aim of supporting the TPID program with a 4K framework (Price Affordability, Supply Availability, Smooth Distribution, and Effective Communication)

The Usage of Economic Position in Understanding Indonesia’s Economy and the Pandemic Effects

Before the global pandemic hit the economy in 2020, Indonesia had experienced two contractions in 1963 and 1998. These contractions come with hyperinflation, while the recent contraction of 2020 has not. This paper attempts to analyse the C-19 pandemic 2020 effects on the economy, which generates contraction but has a low inflation rate. On the opposite, the Asian Financial Crises (AFC) of 1998 caused negative economic growth andskyrocketing inflation. This paper applied descriptive data analysis and showed that the AFC affected the aggregate supply while the pandemic impacted the aggregate demand. This paper offers the usage of the proportion of inflation rate and economic growth rate and the annual sectoral growth rate comparison to describe Indonesia’s economic position and the pandemic effects.

Managing the impact of globalization and technology on inequality

This article tests the relative importance of globalization and technological change in explaining income inequality at higher and lower development levels. Besides, the article analyses the effectiveness of a set of policy measures for fighting inequality. We use relative pre-tax income shares as a proxy for inequality. Several linear and non-linear threshold panel data models with GDP per capita as the threshold variable are estimated for 42 countries over the period from 1994 to 2016. We find that technology is the most important generator of inequality, while the effect of various globalization measures is weak and often insignificant. We find limited evidence that the effect of globalization differs with respect to the level of GDP per capita. Our results suggest that full employment policies in the low inflation environment are the most efficient solution for the inequality problem. Higher employment and low inflation rate decrease the inequality level. Other than that, we do not find other policy measures that satisfy the one-size-fits-all criteria for tackling inequality. Instead, a set of efficient policy measures against inequality, including expenditures on education, minimum wage policies, and lending rates, depend on the development level and idiosyncratic policies and institutions.

The Asymmetric Influence of Exchange Rate and Inflation on Financial Development in Nigeria: Evidence from NARDL

This paper examined the asymmetric effects of exchange rate, and inflation on financial development growth using a model enhanced with oil prices asymmetry to apprise model specification. The research question that has been used implies, do the changes in their asymmetry significantly influence financial development? We employed nonlinear auto-regressive distributive lag (NARDL). In addition, we used the monthly data from 1980M01 to 2018M12. We found a long-term negative shock in exchange rate, both short run positive shock and negative shocks, respectively, declining the financial development. Additionally, the long run negative oil price shock and its long-term positive shocks stimulate and decline financial development, respectively. Regarding inflation, its positive and negative shocks in long run, respectively, reduce financial development. While in the short run the negative and positive shock in inflation increase and decline the financial development respectively. Accordingly, the results demonstrate a stable and sustainable inflation and exchange rate environment that would negatively cause financial development to stabilize the oil price and enhance the robust financial system. Therefore, successful policies that promote low inflation and exchange rates, overhaul of reliably improved financial institutions, capital accumulation, and efficient resources mobilization should be put in place for positive financial development to occur.

МИРОВОЙ ОПЫТ В ОБЛАСТИ ФОРМИРОВАНИЯ ДЕНЕЖНОГО РЫНКА

The article examines the role of the money market in the local currency in the financial market, analyzes the prerequisites for the formation of the money market and the factors necessary for its development. The study examines both the ambitious policy reforms and the specifics of money market formation in the implementation of financial sector development plans and the solution of specific tasks for the development of money markets, the development of financial markets in developing and bordering countries. The main idea of the study is that the formation of stable and money markets is closely linked with the formation of a monetary policy regime based on a flexible exchange rate and the desire to reach a low and stable level. In other words, reforms aimed only at the development of money market rate policy, should take certain steps mechanisms, using projected interest rates and a relatively flexible exchange to achieve low and stable inflation rates. At the same time, the implementation of such a regime is unlikely to be successful without efforts to create appropriate money markets. Key words: financial system, national economy, money market, money market parameters, interest rate, world experience

What are the Determinants of Investment in the Iraqi Agricultural Sector?

The agricultural sector is one of the main economic activities that contribute to a country’s national economy. However, this sector’s growth in Iraq is facing difficulties considering the decline of agricultural capital stock and its reliance on government investment, which is insufficient. Therefore, it requires activating investment in the agricultural sector. Agricultural investment is affected by many determinants that prevent its development. This study aims to investigate the determinants of investment in Iraq such as the rate of inflation, corruption, and agricultural gross domestic production (GDP) for the period 2004Q1-2019Q4. The Autoregressive Distributed Lag Model (ARDL) is used to investigate the study parameters. The results indicated a significant impact of corruption, inflation, and agricultural GDP on Iraq’s agricultural investment in the long run. A 1% decrease in the inflation rate leads to an increase in agricultural investment by 50%. An increase in agricultural GDP by 1% leads to increased agricultural sector investment by 59%. 20% of the defect in the previous year for agricultural investment was corrected in the current year.The results also indicated a long-term equilibrium relationship between investment in the agricultural sector, inflation, corruption, and agricultural GDP, which differed in their impact between the short and long terms. Therefore, decision-makers in Iraq must draw a clear future vision and set appropriate laws to attract investment in the agricultural sector for its development. The country needs financial and economic policies that achieve low and stable inflation rates and limit the adverse effects of inflationary pressures in the short and long term and combat the country’s rampant corruption.

A Markov-Switching Model of Inflation in Bolivia

The Bolivian inflation process is analyzed utilizing a time-varying univariate and multivariate Markov-switching model (TMS). With monthly data and, beginning in the late 1930s, inflation is accurately described by a univariate TMS. The intercept for the high-inflation regime is significantly higher than for the low-inflation regime and the actual inflation rate mirrors the smoothing probabilities of the Markov process. Additionally, the predicted duration of each regime closely fits the periods when the country experienced low and inordinate high inflation rates. From a long-run perspective and utilizing a multivariate TMS, the results generally fall in line with what the quantity theory of money predicts. In the high-inflation regime, money growth increases inflation (almost) one-for-one, as classical economics contends. From a short-run perspective and in the high-inflation regime, inflation is almost exclusively explained by a negative output gap. In the low-inflation regime, lagged inflation is the most important determinant of inflation, in line with price stickiness expectations. Partitioning the sources of inflation demonstrate that, from a long-run perspective and in the high inflation regime, differences in inflation are mostly explained by GDP growth; in the low-inflation regime, money growth and velocity growth are the principal factors explaining the variance of inflation. From a short-run perspective, the output gap explains almost all regression variance in the high-inflation regime, and past inflation does the same during times of low inflation, though in both cases the R2 is low which precludes making definite statements about the sources of variability in inflation.

Techno-economic viability of on grid micro-hybrid PV/wind/Gen system for an educational building in Iran

In this research, a highly potential campus site for solar/wind energy production is identified with the purpose of micro-hybrid system installation in on-grid mode to sellback the excess electricity and hence economize the building as a source of income. A PV/wind/grid and PV/wind/grid/gen system are surveyed techno-economic wise. For case1, the net present cost (NPC) equals to $49,022, renewable fraction (RF) of 85.5%, and cost of energy (COE) $0.0024 is achieved at an inflation rate of 10% and wind speed of 6.8 m/s. While for the best feasible design of case2 (case2d), the NPC = $224,430, COE = $0.0272, RF = 63.6% are obtained. The results indicated that for a low inflation rate a simple PV/grid is appropriate and with the increase of inflation, more equipment incorporation to the system is a preferable choice. Increasing the number of wind turbine cause NPC reduction and the wind speed increase leads to COE reduction. The results indicated that the case1 with 10 XL10R and 76.0 kW generator capacity could generate 315000 kWh electricity which means 69.2% expenditure decline compared to when one turbine is used (maximum annual electricity production and minimum NPC). Increment of inflation rate from 10% to 15% at $0.35 biodiesel price, increases the RF from 14% to about 50%. This implies that when the fuel price is low together with the high inflation rate, the renewability of the system is more significant.

Investigating the Relationship between Unemployment and Inflation in Nigeria

This study considered the impact of inflation on unemployment in Nigeria viz avis selected macroeconomic variables. The researcher adopted co integration, vector error correction model and VEC Granger causality test econometric procedure in the analysis of the data employed. The specific objectives of the study are; (i) to determine the extent to which inflation impact on unemployment in Nigeria within the period of study, (ii) to examine if government expenditure have any significant impact on unemployment in Nigeria within the period of study, (iii) to estimate the significant impact of foreign direct investment on unemployment in Nigeria within the period of study; (iv) to investigate the extent of direction of causality between unemployment and inflation in Nigeria within the period of study. The results of the research revealed long run relationship among estimated variables, VECM result showed a positive significant relationship between inflation and unemployment in the short run and long run, government expenditure and foreign direct investment maintained negative relationship with unemployment both in the short and long run. The VEC Granger causality test indicated causality among UNEM, INF and TGEX. The research recommended that (i) government should focus on policy and strategy that can attract foreign direct investment into the country, (ii) government should try to maintain low inflation rate through suitable monetary policy; (iii) government should encourage investment platforms and enabling environment for effective and efficient national output; and (iv) Government should consciously increase fiscal space for capital activities and projects that are capable of generating income, increase domestic and public spending, improve economic status and reduce unemployment. This paper concluded that the Philip’s curve hypothesis does not apply in Nigeria within the period of study as the result failed to establish an inverse relationship as postulated by A.W. Philips.

Capacity choice, monetary trade, and the cost of inflation

Both buyers and sellers in decentralized markets make investments ex ante that constrain trading possibilities ex post: buyers decide in advance how much money to carry, while sellers decide how much inventory to stock. We show that the interaction between these choices naturally leads to indeterminacy of equilibrium. When neither inflation nor the scrap value of unsold goods is high, there is a continuum of equilibria in which buyers and sellers coordinate on their choices of money balances and capacity. Furthermore, at low inflation rates, traded quantities are pinned down by the seller’s capacity choice, and inflation therefore has no effect on output and welfare. We also contrast our results with other environments with strategic complementarities and discuss how they depend on the pricing mechanism.

Cointegration Analysis of Tourism Sector, Inflation, Interest Rate and Economic Growth in a Special Autonomy Region of Aceh Province, Indonesia

This study is aimed at examining the cointegration relationship of tourism spending, inflation, interest rate, and economic growth. In addition, the correction measure is conducted to measure the tourism spending, inflation, interest rate, and economic growth trend are sustainable in Special Autonomy Province of Aceh, Indonesia between 1990 - 2019. Data from Indonesian Statistics Agency and Central Bank of Indonesia was used in this study. Johansen integration test figures out long run equilibrium of the analysed variables. Augmented Dickey Fuller test figures out that all variables are stationary at first difference. The result provides the evidence that there is one cointegrating relationship maintained. The result shows the long-term relationship of economic growth, tourism spending, inflation, and interest rate, where the null hypothesis is rejected with a statistical trace, and one vector equation co-integrates with the Max-Eigen statistical. This study recommends that policymakers should maintain low rate of inflation and constant level of interest rate.

Liquidity Synchronization, Its Determinants and Outcomes under Economic Growth Volatility: Evidence from Emerging Asian Economies

This study investigates the country-level determinants of liquidity synchronization and degrees of liquidity synchronization during economic growth volatility. As a non-diversifiable risk factor, liquidity co-movement shock spreads market-wide and thus disrupts the overall functioning of the financial market. Firms in Asian markets operate in legal and regulatory environments distinct from those of firms analyzed in the previous literature. Comprehensive analyses of liquidity synchronicity in emerging markets are limited. A major knowledge gap pertaining to Asian emerging markets serves as the primary motivation for this study. Seven Asian emerging economies are selected from the MSCI emerging market index: Bangladesh, China, India, Indonesia, Malaysia, Pakistan and the Philippines for analysis from 2010 to 2019. The empirical findings show high levels of liquidity synchronicity in weaker economic and financial environments with low GDP growth, high inflation and interest rates and underdeveloped financial systems taking the form of low levels of private credit. Liquidity synchronicity is also affected by poor investor protection, political instability, weak rule of law and government ineffectiveness. Moreover, levels of liquidity synchronicity are higher in a period of economic growth volatility.

What Kind Of Inflation Targeting Is Considered The Most Accepted In The Eu Economies?

This study aims to identify the optimal inflation target for the European Central Bank (ECB). It will argue that the current definition of price stability and thus, the target of 2% yearly increase in HICP is not relevant according to our macroeconomic projection in Eurozone. This study argues that very low inflation rates for the last years may signify a threat of deflation. Specifically, the study argues for asymmetric inflation targeting and recommend the ECB to reformulate its inflation target as “close to 2.5% from below and above”. This has to be done in order to counter possible deflation, lower unemployment, avoid the liquidity trap, and give more room for the ECB to conduct its macroeconomic policy under the threat of recession. It is also briefly illuminated some other benefits of higher inflation, such as the option of negative interest rates, seigniorage and money illusion, and the corresponding of the costs associated with higher inflation of 2.5%, such as shoe leather costs, menu costs, tax distortions and uncertainty due to price variability. It is assumed that the outcome of Cost-Benefit analysis for a 2.5% inflation target is not very different from that for a 2% level, while a greater increase in inflation target would produce unclear results.

Extreme Valuations and Future Returns of the S&P 500

Higher than average Price-to-Earnings (P/E) ratios and Cyclically-Adjusted Price-to-Earnings (CAPE) ratios have been tolerated by investors recently on the basis of low interest and inflation rates. This white paper analyzes what level of returns can reasonably be expected going forward from today’s elevated valuation multiples.

Economic Stability and (or) Economic Growth

The article is devoted to consideration of two directions of state economic policy — maintaining economic stability and ensuring economic growth. The coronavirus pandemic has divided the world into “before and after”. In the previous period, the financial policy in Russia was based on the principle of macroeconomic stability. It would seem that the macroeconomic stability that has existed for several years has created the basis for economic growth in the country, but it has not been possible to realize the growth potential of the Russian economy. Economic stability is an important criterion for the economy. Only economic stability can be different.The economic stability of the Russian economy in the previous period is the economic stability of stagnation, because the cornerstone of the economic stabilization policy was maintaining a low inflation rate by artificially slowing down demand. N ow this economic stability of stagnation was overturned by the coronavirus epidemic due to a decrease in budget revenues and an increase in budget spending, which results in the threat of inflation.The purpose of the article is to substantiate the necessity and possibility of transition to a new form of economic stability — economic growth stability

The Determinants of Office Rental Yields: The International Evidence

We examine commercial office rental yields in 89 large cities in 33 developed and developing countries in the 2000-2019 period. As expected, commercial office yields have declined throughout the world, reflecting a decline in the real rate of interest over this time period. Our cross-city analysis indicates that commercial office yields are lower in cities with growing rental rates and in countries with higher credit ratings and lower inflation rates. Finally, we find that rental yields in suburban office markets are higher than in central business districts, and for a given metropolis, suburban yields are lower in suburbs with better public transport connections to the central business district.

Does Inflation Reduce Air Pollution? Evidence from Indonesia

Inflation could likely cause devastating impacts where high inflation can harmful economic and social circumstances. However, only limited studies try to find the impact of inflation on the quality of air. The aim of this study is to investigate the empirical linkage between inflation and air pollution in Indonesia covering the period of 1981 until 2017 by using an error correction model (ECM) methodological approach. The result of study suggests that in the short run, higher inflation is causing the lower level of air pollution. Similarly, in the long run, higher inflation is also affecting the lower level of air pollution. While there are a lot of negative impacts of inflation in Indonesia, the finding in this study indicates a positive impact of inflation in Indonesia, which is higher inflation can reduce the air pollution. The results seem contradict with the target of central bank of Indonesia to have a low but positive rate of inflation. Based on the findings, the study suggests the policymakers in Indonesia to support a robust role of inflation stability in achieving targets related to the reduction of air pollution.

FDI Driven Growth in Emerging Economies: Impact of Levels of Central Bank Independence

This paper investigates the impact of levels of central bank independence (cbi) on the relationship between foreign direct investment (fdi) and economic growth. Economic theory confirms that a higher level of central bank independence is associated with a relatively lower and stable rate of inflation. To the extent that inflation moderation contributes to macroeconomic stability, and the latter provides a favorable environment for fdi to impact growth significantly, we considered it important to examine the possible effect of cbi on the fdi-economic growth relationship. Our attempt in this direction fills an important gap in the literature by adding a new dimension to the fdi-growth nexus. We proceed by subjecting data on fdi flows and gross domestic product (gdp) to Granger causality tests within a panel cointegration framework. Our panel consists of 22 emerging countries subdivided into groups of high and low cbi countries. The empirical investigation in our framework proceeds in three different steps. We begin by testing for non-stationarity in the two variables of fdi flows and gdp in our panel of 22 countries. Prompted by the existence of unit roots in the time series of the referred variables, we use the panel cointegration technique to test for a long-run cointegrated relationship between the two variables of interest in the second step of our estimation. With evidence of cointegration in the long-run fdi-growth relationship for the full and the subdivided panels, we finally use an error correction model to uncover Granger causality in the long run relationship along with its short-run dynamics. The results of our tests indicate a strong cointegration between fdi and economic growth for both the subdivided country groups referred above; causal links between the two variables, however, vary substantially between the two groups. While the high cbi countries show a significant long run bidirectional causality between fdi and economic growth, the low cbi countries demonstrate only a unidirectional link running from economic growth to fdi; there is no evidence of a link running from fdi to economic growth for the low cbi countries. Additionally, we find that for both the country groups, fdi induced growth is a long run phenomenon only. These results seem to suggest that with associated price stability, high cbi countries serve not only as an attraction for fdi flows but, through productivity spillovers, triggers economic growth that induces additional fdi flows.