Low Inflation Rates Research Articles

Growth volatility in the inflation-targeting regime: Evidence from Indonesia

<abstract> <p>Low and stable inflation and exchange rates are the main objectives of inflation-targeting monetary policy. The internal and external stabilities are prerequisites for promoting economic growth. Using a two-stage GARCH, we investigated the effect of inflation instability and exchange rate unpredictability on the economic growth uncertainty in the case of Indonesia over the period 2000(1)– 2022(12). It was evident that both inflation instability and exchange rate unpredictability hurt output growth. The impact of inflation instability was higher than that of exchange rate unpredictability. While the output growth was higher in the post inflation-targeting regime adoption, the effect of real exchange rate instability was greater than that of nominal exchange rate unpredictability. Those findings suggested that the monetary authority should strengthen their commitment to achieve the inflation target range. The sharper focus on the inflation stability might avoid the monetary authority conducting twofold targets of inflation and exchange rate stability to stimulate economic growth.</p> </abstract>

Mechanism of regime changes of global inflation in 2012–2023

The paper studies the process of regime changes: from low inflation and interest rates in 2012–2019 to high inflation and even stagflation in 2020–2023. The authors selected eleven countries for analysis: BRICS, USA and Great Britain, and four EU leading states— Germany, France, Spain and Italy. The trends examined in the first period reflect the difficulty in determining (on monthly data) the role of classic factors influencing the inflation processes (by CPIs) — monetary policy and unemployment, with energy and food prices having strong influence in this period. In general, the upturn in 2012–2019 was not too strong and created a rather comfortable (and predictable) environment for low inflation. In the period of shock recession after the COVID lockdowns the speed of consumer inflation in six developed countries had tripled. General inflation was affected by energy and food process and formatted so rapidly that such factors as unemployment and money supply growth turned out irrelevant. Having reached high growth rate, inflation moved wages up and fixed both its rate (one side elasticity) and dynamics. Core inflation index (manufactured goods) grew in parallel with unit labor cost, which entailed cost-push inflation effect. Growing interest rates were designed to slow down inflation by squeezing economic activity, which was not that simple in terms of ULC in the short run.

A Comparative Analysis of Traditional SARIMA and Machine Learning Models for CPI Data Modelling in Pakistan

Background. In economic theory, a steady consumer price index (CPI) and its associated low inflation rate (IR) are very much preferred to a volatile one. CPI is considered a major variable in measuring the IR of a country. These indices are those of price changes and have major significance in monetary policy decisions. In this study, different conventional and machine learning methodologies have been applied to model and forecast the CPI of Pakistan. Methods. Pakistan’s yearly CPI data from 1960 to 2021 were modelled using seasonal autoregressive moving average (SARIMA), neural network autoregressive (NNAR), and multilayer perceptron (MLP) models. Several forms of the models were compared by employing the root mean square error (RMSE), mean square error (MSE), and mean absolute percentage error (MAPE) as the key performance indicators (KPIs). Results. The 20-hidden-layered MLP model appeared as the best-performing model for CPI forecasting based on the KPIs. Forecasted values of Pakistan’s CPI from 2022 to 2031 showed an astronomical increase in value which is unpleasant to consumers and economic management. Conclusion. The increasing CPI trend observed if not addressed will trigger a rising purchasing power, thereby causing higher commodity prices. It is recommended that the government put vibrant policies in place to address this alarming situation.

Forecasting Consumer Price Index Expenditure Inflation for Food Ingredients Using Singular Spectrum Analysis

Inflation is an economic problem that significantly impacts the macro economy and people's real income if it occurs continuously. South Sulawesi Province often experienced significant inflation fluctuations during 2005-2019. In 2015, inflation in South Sulawesi reached 3.32%, ranking the highest in Eastern Indonesia. Ten food ingredients played an essential role in influencing inflation that year. However, until now, research on forecasting Consumer Price Index expenditure inflation for food ingredients in South Sulawesi using the Singular Spectrum Analysis method has never been carried out. The novelty in this research lies in using the Singular Spectrum Analysis method, which provides a new contribution to forecasting inflation trends in South Sulawesi and deepens understanding of regional inflation problems. This research aims to forecast consumer price index expenditure inflation for food ingredients in South Sulawesi using the Singular Spectrum Analysis method. This research used CPI expenditure inflation data for food ingredients from the official website of the Central Statistics Agency of South Sulawesi for the monthly period from January 2014 - June 2022. The forecasting results show that the lowest inflation rate is predicted to occur in December 2022 at -0,12%, while the highest level is expected to be reached in May 2023 at 0.43%. Furthermore, the mean absolute percentage error value of 3.54% indicates that the forecasting model has a very good level of accuracy. The results of this forecasting have the potential to be used by economic policymakers in South Sulawesi in designing more effective policies to overcome the problem of inflation, especially in the food ingredients and its impact on society. The practical implications of this research can help improve regional economic stability and community welfare.

Monetary Policy, Macroeconomic and Anomalies Interactions Post COVID in Developed and Eastern European Stock Markets

The purpose of this study is to examine the crucial factors amongst monetary policy and macroeconomic variables that spike the anomalies momentum on stock markets post-COVID-19 pandemic in selected Developed and Eastern European countries. This study uses panel data to measure the cross interactions of five stock exchanges based on unprecedented recovery in the European stock markets that yield astonishingly higher returns post-COVID-19, believed to be due to a perfect adoption of monetary policies (Exchange and Inflation Rates) and macroeconomic factor (Economic Growth) from January 2017 to December 2022. Findings suggest that the Exchange Rate and Economic Growth of the country are positively significant in influencing the Stock Market Performance in European stock markets. Additionally, the Inflation Rate surprisingly is negatively related to Stock Market Performance. Furthermore, local and foreign investors prefer to invest in a country that has a great adoption of monetary policies (stable Exchange Rate and lower Inflation Rates) as well as macroeconomic variables (resilient Economic Growth) for post COVID-19 economic landscape. For practical implications, the study suggests that the stock market performance, exchange rate, inflation rate, and economic growth of the country should be maintained and improved to attract fund inflows from local and foreign investments. To the best of the authors’ knowledge, this study is the first that examines the anomalous market momentum effect post-COVID-19 pandemic focusing on aspects, monetary policy, and macroeconomic variables. The momentum effect investing strategies that provide abnormal returns in different stock markets truly existed.

The Concept of Threshold Inflation and How Threshold Inflation Relates to Economic Growth

The relationship between inflation rate and economic growth has resulted in their correlation becoming a subject in an extensive body of empirical and theoretical studies. Many studies have focused on how inflation relates to positive or negative growth. A gap exists in the threshold value beyond which this correlation works. The study fills this gap by using the threshold model to understand a threshold value beyond which inflation negatively impacts economic growth. The research examines the positive and negative associations between inflation and economic growth, the significant threshold value of the inflation rate beyond which it adversely affects growth, and the variation of threshold value and impact across different countries and economies in different developmental stages. The method involves analyzing secondary sources to establish a theoretical framework on the negative relationship between inflation and economic growth and an empirical framework on the relationship between high and low inflation rates on economic growth and threshold values and their impact on economic growth. The method also involves examining practical examples as a strategy to show that there is a variation in inflation threshold value. The concept of threshold inflation shows that there is a value beyond which an economy of a certain country, irrespective of developmental stage, negatively affects economic growth.

Measuring Welfare and Inequality with Incomplete Price Information

Abstract We propose and implement a new approach that allows us to estimate income-specific changes in household welfare in contexts where well-measured prices are not available for important subsets of consumption. Using rich but widely available expenditure survey microdata, we show that we can recover income-specific equivalent and compensating variations from horizontal shifts in what we call “relative Engel curves”—as long as preferences fall within the broad quasi-separable class (Gorman 1970, 1976). Our approach is flexible enough to allow for nonparametric estimation at each point of the income distribution. We apply the methodology to estimate inflation and welfare changes in rural India between 1987 and 2000. Our estimates reveal that lower rates of inflation for the rich erased the real income convergence found in the existing literature that uses the subset of consumption with well-measured prices to calculate inflation.

Different modelling approaches of tax revenue performance: The case of Baltic countries

Tax revenue performance represents one of the most essential issues to every government when creating and profiling fiscal policy according to the macroeconomic framework of each country. In particular, this issue comes to the fore in extraordinary circumstances and unstable trends when governments are exposed to greater costs of financing budget deficits and public debts. Tax revenue mobilization shows the government’s ability to collect sufficient revenue to finance government expenditures, as well as cover public needs. By using static and dynamic panel approaches, this research investigates the effect of tax revenue performance in Baltic countries (Estonia, Latvia and Lithuania) for the period 1995–2020. The main objective of this paper is to identify which determinants are crucial for improving tax revenue performance in the Baltic region. Namely, this research identifies how the main macroeconomic determinants affect the tax revenue performance in Baltic countries, which enables these economies to adjust to their favorable and unfavorable effects from the aspect of tax revenue mobilization. The empirical results show that gross domestic product per capita, industry value added, trade, and government expenditures have positive effects on tax revenue performance, while inflation, gross government debt, and exchange rate volatility negatively affect the tax revenue performance in these economies. Furthermore, the joining of Baltic countries to the European Union upgraded the tax revenue performance of this region in the short-run and long-run. Precisely, Baltic countries should focus on a higher level of economic growth, greater industry share and trade of GDP, as well as lower inflation rate, lesser exchange rate volatility, and smaller government gross debt.

Does geopolitics trigger energy inflation in the European economic area? Evidence from a panel time-varying regression

PurposeThis paper aims to examine the reaction of energy inflation to geopolitical risks in the European Economic Area between 1990 and 2015.Design/methodology/approachThis study applies the nonparametric time-varying coefficient panel data model with fixed effects. In addition, to further reveal potential tail effects that may not have been captured by conditional mean-based regressions, the method of moments quantile regression was also used.FindingsThe findings of this study are as follows: first, as European countries get exposed to geopolitical tensions, it is expected that energy prices will surge. Second, the ability of geopolitical risk to trigger energy inflation in recent times is not as powerful as it used to be. Third, countries with a lower inflation rate, when exposed to geopolitical risks, experience smaller increases in energy inflation compared to countries with a higher inflation rate.Research limitations/implicationsThe findings of this study lead us to the conclusion that transitioning from nonrenewable to renewable energy use is one channel through which the sampled countries can battle the energy inflation, which geopolitical risks trigger. A sound macroeconomic policy for inflation control is a complementary channel through which the same goal can be achieved.Originality/valueGiven the increasing level of energy inflation and geopolitical risks in the world today, this study is an attempt to reveal the time-varying characteristics of the relationship between these variables in European countries using a nonparametric time-varying coefficient panel data model and method of moments quantile regression with fixed effects.

Practical implications of measuring at historical cost in an inflationary environment

This study aimed to analyze the impacts that can occur in the balance sheets of companies in inflationary environments when these balances sheets are not corrected, independently of whether the inflation rate reaches the level determined by IAS 29. The sample chosen consisted of companies from G20 member states that had already adhered to IFRS. The data distribution was analyzed using the ROA, ROE, EPS, and revenue weighted by total assets of the companies studied, before and after monetary correction, using statistical inference and evaluating the statistical probability distribution using the Kolmogorov-Smirnov and Shapiro-Wilk normality tests, and subsequently applying the Wilcoxon non-parametric test. The main results found were that monetary correction in the financial statements of the companies analyzed shows significance, both in countries with high inflation rates and in those with lower cumulative inflation rates. It is concluded that inflation significantly impacts the results of financial statements above a 10% cumulative rate, so measuring accounting elements at historical cost loses relevance, and it is vital to use corrected historical cost by applying a monetary correction.

Growth and inflation tradeoffs of dollarization: Meta-analysis evidence

We examine 585 estimates for macroeconomic effects of dollarization reported in 43 studies, codify 39 aspects of study design that may influence the estimates, and use Bayesian model averaging to take into account model uncertainty in meta-analysis. The results indicate that dollarized countries on average display slower and more volatile output growth, and a lower inflation rate than non-dollarized countries, but the estimates vary widely both within and across studies. Fully dollarized countries on average exhibit slower growth than non-dollarized and partially dollarized economies. Dollarization measurement, empirical method selection and authors’ affiliation systematically affect reported dollarization effects. The empirical results also suggest that limited control over foreign currency’s money supply in dollarized economies reduces the central banks’ ability to effectively conduct monetary policy and adjust to macroeconomic shocks.

Is There an Economic Recession in the United States During COVID-19 from the Perspective of Employment Factor?

In the period of 2019-2020, the economies of all countries have been affected to some extent, with higher unemployment and lower consumer inflation. This paper takes the United States as an example to analyze whether there will be an economic recession in the United States during 2019-2020 from the perspective of unemployment rate and the impact of this recession. In addition, this paper also uses the fitted matched text was also used to test the hypothesis, and it was found that the same trend did appear in the United States during Covid-19 and the recession of 2008. In addition, this paper also gives some suggestions on how to react to this trend in the United States. The study suggests that during the economic recession, the government should not only maintain good inflation rate to stimulate the economy to avoid hyperinflation, but also avoid falling into the trap of low inflation rate.

Exploring the determinants of Fintech Credit: A comprehensive analysis

In recent years, FinTech credit has witnessed significant growth in the market. While previous studies have explored various factors that drive FinTech credit, a comprehensive evaluation of the determinants from the supply/demand side and risk perspective has been lacking. Thus, we examined the determinants of FinTech credit by analyzing a large collection of economic variables from 41 countries between 2013 and 2020. For this purpose, the dimension reduction technique was adopted to abstract the key determinants. The results are as follows. (1) FinTech credit is positively correlated with economic and technological development, which is more pronounced in countries with lower inflation rates. (2) It is negatively correlated with financial risk and bank competition, which is stronger in countries with lower levels of bank credit. (3) It is complementary, rather than substitutive, to traditional bank credit. The implication of the findings is that FinTech credit plays a crucial role in addressing the issue of insufficient bank credit supply.

Grouping The Regencies/Cities in Indonesia Based on Expenditure Groups Inflation Value Using DBSCAN Method

Inflation is one of the important problems faced by a country in achieving economic goals and targets. The amount of inflation is measured using the Consumer Price Index for eleven expenditure groups in 90 regencies/cities in Indonesia. The occurrence of differences in inflation rates between regencies/cities in Indonesia will affect Indonesia's national inflation. The purpose of this research is to grouping regencies/cities based on expenditure groups inflation value and to identify the characteristics of the resulting groups. DBSCAN is a density-based non-hierarchical cluster method that can be used in data conditions that contain outliers. The data used in this study is secondary data obtained from the publication of the Badan Pusat Statistik Republic of Indonesia (BPS RI) regarding inflation by expenditure group. The analysis includes outlier detection, grouping using the DBSCAN method, performing cluster validation with silhouette coefficient, and identifying the characteristics of the clusters formed. Based on the grouping that has been done, two clusters are produced with a silhouette coefficient value of 0.65. The resulting cluster is cluster 0 in the form of a noise cluster consisting of 3 regencies/cities with regencies/cities that have a high category expenditure group inflation rate. Cluster 1 consisting of 87 regencies/cities is a cluster with regencies/cities that have a low category expenditure group inflation rate.

The credit cycle and corporate strategy: challenges and solutions

PurposeThis paper offers a practical overview of the U.S. credit cycle and the challenges it poses, along with a perspective on where we seem to be in the cycle in early 2023. Suggestions are then offered for how corporate executives can address cyclical challenges from a corporate strategy perspective.Design/methodology/approachThe United States credit cycle was out into context by following the trend of Moody’s Baa corporate bond yields from January 1919 to November 2022. Under the Moody’s rating system, Baa is the lowest level of investment grade credit, and as such it possesses speculative characteristics that are sensitive to cyclical dynamics. Another reason for choosing Baa credit patterns for analysis is data availability: over 100-years of continuous Baa data is searchable at the U.S. Federal Reserve.FindingsThe prior credit cycle wave of progressively lower inflation and interest rates began in 1982 and ended in 2020. The current credit cycle of wave of progressively higher inflation and interest rates will present strategic risks and opportunities that executives will increasingly have to deal with.Originality/valueThis is the first corporate strategy paper we are aware that practically addresses the credit cycle change. It is also the first paper we are aware that provides practical suggestions on how to address that change from a corporate strategy perspective.

Inflation and Its Uncertainty: Evidence from Indonesia and the Philippines

This article investigates the relationship between inflation and its uncertainty under the inflation-targeting regime in Indonesia and the Philippines over 2005(7)–2021(12). The Kernel density function and entropy index applications reveal that the price level in both countries is heterogeneous. The non-linear quantile regression estimation shows that inflation affects inflation uncertainty positively. Inflation more likely induces its uncertainty in higher quantiles. The effect exhibits an inconsistent linearity property. While the symmetric behavior holds in the Philippines, inflation in the case of Indonesia affects the inflation uncertainty differently, not only inter-quantiles but also intra-quantiles. Given that Indonesia and the Philippines have low inflation rates relative to other emerging markets, our findings suggest that announcing higher inflation targets may be costly to provoke higher inflation uncertainty. Accordingly, controlling inflation uncertainty in the inflation-targeting regime can be achieved if monetary policy is credible and independent. JEL Classification C14, C21, D08, E31, O23

The scars of supply shocks: Implications for monetary policy

We study the effects of supply disruptions - for instance due to energy price shocks or the emergence of a pandemic - in an economy with Keynesian unemployment and endogenous productivity growth. By temporarily disrupting investment, negative supply shocks generate permanent output losses - or scarring effects. By inducing a negative wealth effect, scarring effects depress aggregate demand, which may even fall below the exogenous fall in supply. However, that scarring effects depress aggregate demand does not necessarily translate into low rates of inflation. On the contrary, scarring effects may reinforce and prolong the inflationary impact of supply disruptions. A contractionary monetary policy response may end up deepening scarring effects and increasing inflation in the medium run. A successful disinflation may require a policy mix of monetary tightening and fiscal interventions aiming at supporting business investment and the economy’s productive capacity.

Investigations into Ghana’s Macroeconomics Relationship between Inflation and Unemployment. Quantitative Analysis Based on Time Series in the Years 1990-2014.

Indicators of a country's economic well-being include the unemployment rate and inflation rates. The empirical relationship between inflation and unemployment in Ghana's economy is explained and analyzed in this paper. It appears that the most hotly debated statistics in Ghana are the rate of inflation and the rate of unemployment, yet there is lack of knowledge about the connection between unemployment and inflation, it is imperative that we gain this understanding. In addition, the tax rate, compensation for employees, participation in the labor force, and enrolment in tertiary education are all indicators of unemployment. A quantitative framework is used to explain the empirical relationship between inflation and unemployment in Ghana and determine the sensitivity of unemployment to changing inflation levels using co-integration regression, causality, correlation, and sensitivity analyses. The Augmented Dickey-Fuller test of stationarity was adopted, after which the Granger causality method was used to determine causation between inflation and unemployment The study relied on World Bank data from 1990 to 2014 and found a strong correlation between unemployment and inflation in the Ghanaian economy which is also consistent with Haug and King (2011), whereas Onwioduokit (2006) found a negative correlation. The model's variables are stationary, and the findings of the causality test point to a link between Ghana's high unemployment rate and its high inflation rate. The unemployment will rise by 3.2795 percent if inflation rises by 1 percent. I therefore recommend that the Ghanaian economy maintain a low and stable inflation rate in order to reduce unemployment, equivocally, thanks to the findings of this research. There is evidence to suggest that inflation has a long-term positive impact on and is a direct cause of unemployment in Ghana, so policymakers and the government should put more effort into keeping inflation low in order to address this problem. Since inflation levels can be used to measure unemployment levels to some extent and the R-squared is significantly low in the regression result, the measurement of inflation should be done more accurately to avoid errors. Ghana's Statistical Service must devote more resources to ensuring that the CPI basket includes only relevant items and should be given the appropriate weights. Real-world impact should be reported in relation to other indicators or factors to make it more comprehensible. For example, an increase in unemployment of z percentage points could be explained by an increase in the price of an item purchased on the market rising by y percentage points. Finally, the researcher recommends that other economic indicators, such as employee compensation, tax rate, labor force participation rate, and tertiary school enrollment, be taken into consideration as potential indicators of unemployment in African economies.

Job-to-Job Mobility and Inflation

Abstract The low rate of inflation observed in the U.S. over the past decade is hard to reconcile with traditional measures of labor market slack. We develop a theory-based indicator of interfirm-wage competition that can explain the missing inflation. Key to this result is a drop in the rate of on-the-job search, which lowers the intensity of interfirm-wage competition to retain or hire workers. We estimate the on-the-job search rate from aggregate labor-market flows and show that its recent drop is corroborated by survey data. During “the great resignation”, interfirm-wage competition rose, raising inflation by around 1 percentage point in 2021.

China's growing but slowing inequality of household wealth, 2013–2018: A challenge to ‘common prosperity’?

By examining the period 2013–2018, this paper follows up a previous one which analysed the increase in the inequality of China's wealth per capita over the period 2002–2013. It finds that the Gini coefficient, having risen rapidly over the earlier period, continued to grow but did so more slowly in the later period, at the national level and in both urban and rural China. Counterfactual analysis identifies the lower rate of house price inflation as an important reason for the slowdown. Policies and policy options are examined, both directly on wealth inequality and indirectly through control of house price inflation. Nevertheless, the rising inequality of wealth per capita among households does indeed pose a challenge to the achievement of ‘common prosperity’ in China. It deserves more policy attention.