Exchange Inflation Research Articles

Impact of Financial Intermediation and Regulatory Frameworks on Financial Deepening and Economic Growth: Insights from Lesotho

Purpose: The purpose of this study is to analyse the impact of financial intermediation and regulatory frameworks on financial deepening and economic growth in Lesotho, utilizing data from 2003 to 2022. The objective is to explore the relationships between selected financial and economic indicators and assessing their influence on financial deepening. Methodology: This study utilized secondary time series data, which poses challenges regarding authenticity and reliability since it was collected by external parties. However, these concerns were addressed by using data from reputable global agencies like the IMF, World Bank, and the Central Bank of Lesotho’s annual report from 2003 to 2022. The analysis was conducted using the Ordinary Least Squares (OLS) regression method. Findings: The findings highlight the complex role of financial intermediation and regulatory frameworks in shaping financial deepening and economic growth. Higher cash reserve ratios and treasury bill rates negatively affect financial deepening by reducing liquidity and increasing credit costs. However, increased commercial bank deposits with the central bank positively contribute to financial stability and deepening. Moderate inflation also fosters financial deepening by raising the nominal value of financial assets. While ATMs per capita enhance financial access and growth, an increase in bank branches per capita shows inefficiencies, underscoring the need for effective infrastructure and service delivery. Unique Contribution to Theory, Policy and Practice: The study suggests that policymakers should adjust cash reserve requirements, monitor credit expansion to avoid over-lending, and improve banking infrastructure. It highlights the need for careful interest rate management and promoting financial innovation to enhance market depth.

Diversification and the Resource Curse: An Econometric Analysis of GCC Countries

This research explores the effects of significant global economic shocks, such as the 2008 Global Financial Crisis and the 2020 COVID-19 pandemic, on GDP growth in the Gulf Cooperation Council (GCC) nations. Employing a dynamic generalized method of moments (GMM) model, the analysis highlights the strong momentum effect of lagged GDP growth, where past performance plays a critical role in shaping current economic outcomes. The findings also reveal that natural resources continue to positively influence short-term growth, but with diminishing returns over time, supporting the resource curse hypothesis and underscoring the need for broader structural reforms to ensure long-term sustainability. In addition, the results show that external investments flowing into the country, trade balance, and inflation emerge as key drivers of economic growth. While moderate inflation is positively associated with economic expansion, unemployment exerts a significant negative effect on GDP growth, particularly in models that account for country-specific characteristics. This emphasizes the need for labor market reforms to improve employment rates and support sustainable development. The role of gross capital formation, particularly in both the dynamic GMM and random effects models, further underscores the importance of strategic domestic investment, especially during periods of global disruption. These findings emphasize the critical need for economic diversification in the GCC. Policymakers should focus on attracting foreign investment, managing inflation, enhancing human capital, and boosting domestic investment to mitigate the adverse effects of the resource curse and secure sustainability. While market capitalization and oil rents may stimulate short-term growth, their long-term sustainability remains uncertain without greater diversification. Both external and domestic investments emerge as critical drivers of long-term growth, while persistent challenges such as inflation and unemployment continue to pose risks to economic stability. The study highlights the need to reduce reliance on oil and leverage human capital to build more resilient economies capable of adapting to future challenges. By offering dynamic, empirical insights into the balance between resource reliance and sustainable growth, this research adds valuable insights to the policy discussion on economic diversification in the GCC. Policymakers are urged to prioritize FDI, inflation management, domestic capital formation, and human capital development to mitigate vulnerabilities and ensure sustainable economic growth in the face of ongoing global uncertainties.

Considerations on inflation, economic growth, and the 2 per cent inflation target

This paper considers two basic questions with respect to inflation control, inflation targeting, and overall macroeconomic performance. The initial question is: what has been the justification in research for establishing an inflation target, and specifically a low inflation rate target of 2–3 per cent, as the organizing principle and overarching goal of macroeconomic policy? The second question is: do we actually observe stronger macroeconomic performances – as measured in standard terms of gross domestic product (GDP) growth – when macro policy operates within the framework of such low inflation targets? Our answers to these questions are straightforward. First, no serious body of research has been produced that provides a clear justification for a 2–3 per cent inflation target as the central goal of macroeconomic policy. Further, there is no body of evidence showing that economies at any level of development consistently experience stronger economic growth outcomes when inflation is maintained at less than 3 per cent as opposed to higher inflation rates, certainly within a 4–5 per cent inflation range and, in some circumstances, somewhat higher rates still. These findings are significant insofar as they open space for considering the set of measures other than contractionary monetary policies as viable inflation control tools. It is possible that these other measures do not operate as forcefully as contractionary monetary policy in bringing inflation down to a 2–3 per cent target range. However, our findings suggest that it is not typically necessary to force down inflation to such low levels, especially given that contractionary monetary policies succeed in controlling inflation primarily through the channel of raising mass unemployment and weakening workers’ bargaining power.

Empirical Analysis of the Macroeconomic Drivers of Banking Industry Stability in Nigeria

The main purpose of this study is to determine the macroeconomic drivers of banking industry stability in Nigeria. The study employed Quantitative Research method using ex-post research design to analyse the impact of exchange rate, interest rate, inflation rate, economic growth rate, and unemployment rate on bank credit-asset ratio from 1991 to 2023. Based on preliminary estimations from the Phillips-Perron unit root and F-Bounds tests, the study employed the Autoregressive Distributed Lag (ARDL) technique to establish the following key findings. Macroeconomic variables collectively and significantly influence banking industry stability. Specifically, high economic growth rate, moderate inflation rate, and low unemployment rate are the core drivers of banking industry stability, while high interest rate and volatile exchange rate exert a significant negative influence on banking industry stability. Consequently, bankers and macroeconomic policymakers should collaborate to ensure that macroeconomic policy frameworks provide banks with the opportunities for capital mobilisation necessary to effectively perform their financial intermediation roles for the overall benefit of the economy. The study recommends balancing macroeconomic targets and bank stability through growth-inflation-employment targeting policies to improve households' loan repayment resilience and reduce the credit risk of Nigerian banks. Additionally, exchange rate stabilisation through government intervention is suggested to help banks hedge against asset and credit value loss due to exchange rate volatility.

RETHINKING THE PHILLIPS CURVE IN TÜRKİYE: NEW EVIDENCE FROM THE FREQUENCY DOMAIN

This study aims to investigate the short- and long-run relationship between the inflation rate, which has come to the fore after a long break all over the world, and the unemployment rate for the Turkish economy. For this purpose, the relationship between the two variables is analyzed using a causality test in the frequency domain, with monthly data for the period 2005:01-2023:03. The symmetric findings of the test indicate the existence of a unidirectional and short-run causal relationship from unemployment to inflation. The asymmetric findings of the test provide two important pieces of evidence. The first of these is the existence of a unidirectional and long-run causal relationship from the positive component of unemployment to the negative component of inflation. The second is the existence of a unidirectional, short- and long-run causal relationship from the negative component of unemployment to the positive component of inflation. These findings confirm the trade-off predicted by the Phillips Curve. It is also important for policymakers to try to increase productivity by making structural and institutional reforms in the labor market, as far as settling for a moderate inflation rate while struggling with inflation and unemployment problems.

The Impact of Monetary Policy, Inflation Rates, and Foreign Direct Investment on Economic Growth in Developing Countries

This study explores the intricate relationships between monetary policy, inflation rates, and foreign direct investment (FDI) and their collective impact on economic growth in developing countries. Utilizing a comprehensive review of existing literature, this research aims to provide a nuanced understanding of how these macroeconomic factors interact to influence economic development. Monetary policy, often implemented through adjustments in interest rates and money supply, is critical in shaping economic stability and growth. The study reveals that effective monetary policy in developing countries can stimulate economic activity by fostering an environment conducive to investment and consumption. However, the impact of such policies is contingent upon the stability and credibility of the governing institutions, which are often variable in developing regions. Inflation rates, which reflect the general rise in price levels, were found to have a complex relationship with economic growth. Moderate inflation can stimulate spending and investment by reducing the real burden of debt and encouraging consumption. In contrast, high inflation can erode purchasing power and deter both domestic and foreign investment, thereby stifling growth. This study underscores the importance of maintaining inflation within a manageable range to support sustainable economic growth. Foreign direct investment is identified as a key driver of economic development, providing capital, technology transfer, and employment opportunities. The research highlights that FDI can significantly enhance economic growth by supplementing domestic capital, improving infrastructure, and fostering industrial diversification. However, the benefits of FDI are maximized when complemented by stable economic policies and a favorable investment climate. In conclusion, the interplay between monetary policy, inflation, and FDI is crucial in shaping the economic trajectories of developing countries. The study suggests that balanced and coherent policy frameworks are essential to harnessing these factors for sustained economic growth. Future research should explore country-specific dynamics to better understand the differential impacts across various developing economies.

Does the U.S. export inflation? Evidence from the dynamic inflation spillover between the U.S. and EAGLEs

Given the crucial role of inflation as a key economic barometer, our paper investigates the dynamic inflation spillover between the U.S. and the nine emerging and growth-leading economies (EAGLEs) between 1991M1 and 2020M2. Employing the recently developed time-varying parameter vector autoregressions (TVP-VAR)-based connectedness approach, we find evidence of a moderate inflation spillover across the sample countries at normal condition. We further point out that inflation spillover effects with the U.S. are more pronounced for the emerging markets with higher openness, the net oil-importing emerging markets, and the emerging markets following free-float exchange rate regimes. More importantly, the inflation spillover index among the system rises dramatically to over 70% under extremely inflationary conditions, implying that the transmission of spiral inflation is very high. Additionally, the time-varying analysis shows that the role of the U.S. in the inflation shock transmission with emerging countries varies between being a net inflation-exporter and inflation-importer over times. Finally, an investigation of the drivers of the inflation spillovers reveals that the U.S. dollar, emerging markets' economic policy uncertainty, and bilateral trade are key determinants of the inflation shock transmission among the system. Our findings justify central banks’ actions in decreasing U.S. dollar reserves to safeguard their domestic currencies.

Inflationary threshold effect on the nexus between economic growth and public debt: The case of Asian countries

Our study is carried out in an attempt to investigate the causal relationship between economic growth and public debt under the influence of inflation in Asia. To achieve our research objectives, we used a threshold regression model and data collected from Asian countries from 2010 to 2021. The study results show that there is an inflation threshold of 10.4907% at which the influence of inflation changes and the increase in public debt harms the growth rate. Additionally, regression results on the relationship between public debt and economic growth show different results between developed and developing countries. The research results confirm previous researchers' theories and empirical findings on the relationship between inflation and economic growth. In addition, government spending negatively impacts economic growth, while population growth, capital stock, and trade scale positively impact economic growth. Studying the relationship between economic growth and public debt can provide a helpful reference for Asian policymakers. Accordingly, governments should pay special attention to maintaining moderate inflation and limiting public debt to promote economic growth.

Determinants Of Foreign Direct Investment In Malaysia

Foreign Direct Investment (FDI) occurs when one country invests in another. Multiple factors have contributed to fluctuations in FDI flows globally. This study investigates the impact of the microeconomic variables on FDI in Malaysia. Data were collected for the period of 30 years from 1992-2021 and analysed using Multiple Linear Regression models. The study’s findings concluded that gross domestic product (GDP), inflation (INF), real interest rate (RIR), trade openness (TRA), unemployment rate (UNE) and exchange rate (EXC) are six major macroeconomic variables impacting FDI inflows. Result of the study reveal that gross domestic product (GDP), inflation (INF) and exchange rate (EXC) are positively related to foreign direct investment (FDI). This suggests that a robust domestic economic output, moderate inflation rates, and favourable exchange rates serve to attract foreign investment. However, the study reveals that the real interest rate (RIR), trade openness (TRA) and unemployment rate (UNE) are negatively related to foreign direct investment (FDI). Overall, this study contributes valuable insights into the intricate relationship between microeconomic variables and FDI inflows in Malaysia, shedding light on how different economic factors collectively shape the investment landscape of the nation.

Analysis of economic growth through the context conditions that allow entrepreneurship

AbstractThe literature that recognizes the entrepreneurial function as a fundamental factor in regions’ and countries’ growth abounds. When studying the macroeconomic conditions that favor entrepreneurship, most studies analyze the problem from an organizational level. This article assumes the value of entrepreneurship as a mediating element in economic growth. It analyzes the most relevant legal and macroeconomic conditions that improve the suitable adjustment of entrepreneurial initiatives to the demands and available resources of a given economy. These conditions are not analyzed strictly from an economic perspective but in terms of their impact on the entrepreneurial function. To validate our hypotheses, a qualitative methodology focused on Latin American countries is used to reduce the heterogeneity of the cultural and historical context of the studied cases. The results reveal that low or moderate inflation, together with investment freedom and low tax burden, are the most determining factors of economic growth in Latin America.

Inflation-income inequality nexus in South Africa: the role of inflationary environment

ABSTRACT We estimate vector autoregressive models to examine the effect of the 3 to 6 per cent inflation target band in the inflation and income inequality nexus in South Africa. We use quarterly data spanning 1993Q1 to 2016Q3 to analyse how growth in income inequality responds to positive inflation shocks when inflation is within the 3 to 6 per cent target band versus when it exceeds 6 per cent. Evidence indicates that positive inflation shocks within the 3 to 6 per cent inflation target band lead to an insignificant decline in income inequality. However, greater income inequality results when inflation exceeds 6 per cent threshold. This suggests that the inflation-income inequality nexus in South Africa is nonlinear due to the 3 to 6 per cent inflation target range. Thus, inflation above 6 per cent is harmful as it increases income inequality. Policymakers should pursue policies that maintain the existing target band.

Dinamika Inflasi Di Indonesia Terhadap Daya Beli Masyarakat Pada Tinjauan Ekonomi Makro

Analysis of the influence of inflation dynamics in Indonesia on people's purchasing power is an important focus in macroeconomic studies. This research aims to explore the impact of inflation on people's purchasing power in the Indonesian macroeconomic context. The research method used is qualitative, involving observation and interviews by researchers. The research stages are data reduction to shorten, focus and reduce less important things and process the data in such a way that the final conclusion is implemented. From the results of observations and interviews, it can be concluded that the macroeconomic review of inflation in Indonesia illustrates the complex relationship between this phenomenon and people's purchasing power. High inflation can put significant pressure on consumers' ability to purchase goods and services, while moderate inflation with the right policies can provide opportunities for balanced economic growth.

A Study of Inflation in the UK’s Economy in 2021 and 2022

After COVID-19, global economies have been hit to various extents, and inflation has become one of the global problems. Moderate inflation can promote economic growth, but excessive inflation can lead to higher cost of living and production costs. Therefore, controlling inflation has become one of the main goals of most countries. This article aims to find a new way to improve the abysmal economic situation in UK. The article analyzes how COVID-19, Brexit and rising energy affect the inflation in UK from 2021 to 2022. This study also evaluates the effectiveness of the policies that imposed by Boris Johnson government and Elizabeth Truss government, including tax policies and labor market reform to correct cost-push inflation. From the results of the analysis, it is clear that the UK needs a strong and stable government to maintain long-term geo-political situation. It could go a long way toward easing inflationary pressures, but this depends on the attitude of the government. Otherwise, the fact proves that demand-side economic policies are ineffective under existing situation, and that only supply-side reforms can inject new vitality into the UK economy.

Is there a Trade-Off between Inflation and Unemployment: The Case of Nigeria

This study examined whether a trade-off exist between inflation and unemployment in Nigeria by investigating the validity of the Phillips Curve Preposition in the Nigerian economy using data from 1981-2022. The Autoregressive Distributed Lag Bounds of cointegration was employed for the analysis of short-run and long-run effects of inflation, population growth rate and foreign direct investment on unemployment. The short-run result endorsed the validity of the Phillips Curve preposition in Nigeria. Thus, a moderate inflation is tolerated in order to enjoy low unemployment in the short-run and vice verse. However, the results of the long-run revealed that there is no trade-off between inflation and unemployment in Nigeria and that the Phillips Curve is a vertical line at the natural rate of unemployment. Furthermore, the causality results showed the presence of unidirectional causality from inflation to unemployment in Nigeria. On the basis of this study it can be concluded that an attempt to decrease unemployment at the cost of higher inflation in the short run led to higher inflation and no change in unemployment in the long run in Nigeria. Consequently, we recommend among others, adoption of discretionary policy that would reduce unemployment by boosting government spending and at same time maintain stability in money supply. In addition, creation of a more business friendly economy by the government is needed to attract foreign direct investment into the economy for job creation.

От нейтрализации внешних шоков к устойчивому долгосрочному развитию

The successful response of the Russian economy to the avalanche of sanctions that have fallen on it brings to the fore the problems of long-term development. The article analyzes a set of institutional transformations, features of financial and monetary policy, which could contribute as much as possible to a large-scale restructuring of the Russian economy. The author's model of monetary reform is proposed for discussion, designed to ensure the comfortable adaptation of economic agents to moderate inflation and increase the attractiveness of the ruble as a means of international settlements.

Peran dewan pengawas Syariah dalam meningkatkan pengeluaran zakat Bank Umum Syariah di Indonesia

This research aims to test the influence of profitability, firm size, and inflation on zakat expenditure and test the Sharia Supervisory Board (DPS) moderating profitability, firm size, and inflation on zakat expenditure. This research is explanatory research with a quantitative approach. The research population is Sharia Commercial Banks (BUS) in Indonesia, listed on the Indonesia Stock Exchange for 2017-2022, and 14 BUS were obtained. This test uses SEM-PLS. The research results prove that profitability has no effect. Zakat may be a personal matter, not a company matter. Firm size has an influence; the greater the assets owned, the greater the potential for issuing zakat. Inflation has no effect because decreasing people's purchasing power will affect paying zakat. DPS does not moderate profitability because the company has yet to issue a fatwa on zakat. DPS can moderate firm size, meaning that DPS has carried out its role. DPS cannot moderate inflation, meaning that DPS must provide management with a good understanding that if they have reached the nisab and haul, they must issue zakat. Novelty in this research is adding a moderating variable and using Shariah Enterprise Theory.

Do domestic innovations promote trade openness? Empirical evidence from emerging economies

PurposeInnovation activities have gained much importance due to their pivotal role in achieving economic growth – directly by increasing productivity and – indirectly by increasing the degree of trade openness. This study aims to focus on the indirect channel, a rarely explored area of research, especially in the context of emerging economies. MethodologyTo achieve the aim of the study, four proxies of innovation (resident patent applications, nonresident patent applications, scientific and technical journal articles, and research and development expenditures) are used to establish a robust relationship between innovation activities and trade openness in BRICS economies. Panel data from 2000 to 2020 is obtained from World Development Indicators and Penn World Tables. Econometric techniques of panel data such as fixed effect and generalized least squares are employed to extract results from the specified models. FindingsThe findings of the study revealed that three proxies of innovation (i.e., resident patent applications, nonresident patent applications, scientific and technical journal articles) have a significant positive role in improving trade openness in the BRICS economies. However, the fourth proxy of innovation i.e., research and development expenditures had a negative impact on the degree of trade openness. Besides, innovation activities such as inflation rate and foreign direct investment have also influenced the degree of trade openness positively and significantly. Conversely, GDP per capita had a negative relationship with trade openness. Moreover, domestic investments showed a positive influence on the degree of trade openness while employment had a negative and insignificant influence on the degree of trade openness. Finally, the causality analysis revealed a one-way relationship running from innovations to trade openness. ImplicationsIn view of the results obtained, the policymakers of the BRICS economies might focus on encouraging innovation activities to enhance the degree of trade openness. Increased trade openness will consequently contribute to economic growth enormously and thus the attainment of sustainable development goals (SDG-8). Policymakers are also suggested to encourage FDI inflows and further ensure a moderate inflation rate to improve the degree of trade openness and hence accelerate economic growth. OriginalityThis study focused on examining the nexus between innovation activities and trade openness in emerging economies, which is indeed an interesting but rarely explored area of research. The findings of the study might help the policymakers of the BRICS economies in formulating policies regarding trade openness and innovation activities.

Is it better to tolerate moderate inflation than to bear the costs necessary to achieve price stability?

Is it better to tolerate moderate inflation than to bear the costs necessary to achieve price stability?

Macroeconomic dynamics in a finite world based on thermodynamic potential

This paper presents a conceptual model describing the medium and long term co-evolution of natural and socio-economic subsystems of Earth. An economy is viewed as an out-of-equilibrium dissipative structure that can only be maintained with a flow of energy and matter. The distinctive approach emphasized here consists in capturing the economic impact of natural ecosystems’ depletion by human activities via a pinch of thermodynamic potentials. This viewpoint allows: (i) the full-blown integration of a limited quantity of primary resources into a non-linear macrodynamics that is stock-flow consistent both in terms of matter-energy and economic transactions; (ii) the inclusion of natural and forced recycling; (iii) the inclusion of a friction term which reflects the impossibility to produce (and recycle)goods and services without exuding energy and matter wastes, and (iv) the computation of the anthropically produced entropy as a function of metabolizing intensity and frictions. Analysis and numerical computations confirm the role played by intensity and frictions as key factors for sustainability by contrast with real gdp growth—as well as the interplay between resource scarcity, income inequality, and inflation. A more egalitarian society with moderate inflation turns out to be more sustainable than an unequal society with low inflation. Our approach is flexible enough to allow for various economic models to be embedded into our thermodynamic framework. Finally, we propose the open source EcoDyco software as a first complete realization implementing economic dynamics in a multi-resource environment.

The inflation game

AbstractWe study a game where households buy consumption goods to preempt inflation. This game features a unique equilibrium with high (low) inflation, whenever money supply is high (low). For intermediate levels of money supply, there exist multiple stable equilibria where inflation is either high or low. Equilibria with moderate inflation, however, do not exist, and can thus not be targeted by central banks. That is, depending on agents' equilibrium play, money supply is always either too high or too low for moderate inflation. Finally, we find that inflation rates of durable goods, such as houses, cars, luxury watches, or furniture, are useful leading indicators for changes in overall inflation.