Monthly Inflation Research Articles

Modelling and Forecasting Inflation in Tanzania, 'A Univariate Time Series Analysis'

Modelling and forecasting inflation remains a vital concern in most of developing country economies. Moreover, better understanding of country’s inflation situation and future inflation can facilitate the policy makers to adopt appropriate policy measures to curb the problem. The study supplements the financial programming framework of the Bank of Tanzania by ascertaining the model that incorporates some key behavioural properties that are necessary in forecasting inflation.The study employs the Box-Jenkins (1976) methodology that involves stages of identification, estimation, diagnostic checking, and forecasting of a univariate time series.Findings of the study suggest that during the sample period the monthly inflation rate in Tanzania was non-stationary at level but stationary after taking the first difference, results indicate also that the model that contains AR (1, 3, 8, and 15) and MA (1 and 12) components outperformed other models in both in-sample and out-sample forecasts. Six months out-of-sample inflation forecasts are also provided by the study.The study recommends the government through the Bank of Tanzania to adopt the flexible form of inflation targeting so as to improve the design and performance of monetary policy towards attainment of price stability. Results also indicate that inflation is expected to rise in the next six months; hence there is a need for government to react immediately to these inflationary pressures through appropriate fiscal and monetary policies.

The Relationship between Inflation and Inflation Uncertainty: Evidence from the Turkish Economy

In the present study, we examine the relationship between inflation and inflation uncertainty in Turkey from 2002 to 2011 using two-step procedure. At first step, ARMA-GARCH model of monthly inflation data is estimated and the conditional variance from these estimates is indicated as the monthly inflation uncertainty series. Then, the Granger causality tests between primarily inflation and generated inflation uncertainty series are performed. Empirical results of our study provided strong evidence in favor of the Friedman-Ball hypothesis that inflationary period result in high inflation uncertainty in Turkish case. These results present significant implications for the relationship between inflation and inflation uncertainly in developing countries as much as monetary policy adopted Inflation Targeting in Turkey.

Measurement of Filters’ Efficiencies and Application Of NNSFDI Method

The study aims to propose the neural network filter based on NNSFDI method as an alternative filter in economics; namely, Baxter-King, Hodrick-Presscott, Christiano and Fitzgerald and Kalman filters. In this paper, it was used two different data which consist of the annual unemployment rates for 1923 – 2008 periods and the monthly inflation rates for 1964:02 – 2009:07 periods.The performance of the new method proposed and the main stream filters were, in particular, evaluated based on the annual and monthly data. The empirical findings suggest that the newly proposed NNFSDI model provedid better forecast results compared to Kalman, HP, BK and CF filters for different data sets when evaluated in the light of different error criteria such as MSE, RMSE and MAPE

Modelos lineares e não lineares da curva de Phillips para previsão da taxa de inflação no Brasil

Este trabalho compara previsoes da taxa de inflacao mensal brasileira a partir de diferentes modelos lineares e nao lineares de series temporais e da curva de Phillips. Em geral, os modelos nao lineares apresentaram um melhor desempenho preditivo. Um modelo VAR produziu o menor erro quadratico medio de previsao (EQM) entre os modelos lineares, enquanto as melhores previsoes, entre todos os modelos, foram geradas pela curva de Phillips ampliada com threshold, a qual apresentou um EQM 20% menor do que a do modelo VAR. Essa diferenca e significante de acordo com o teste de Diebold e Mariano (1995).

Evolving Perceptions of Central Bank Credibility: The European Central Bank Experience

What are the preferences of a central bank over inflation and output-gap stabilization objectives, and what is its preferred long-run inflation rate? While statements of priorities and goals are important, the credibility of such statements and the market perception of the policy reaction function of a central bank play a key role in determining economic outcomes. This point, early on described as the “credibility” of central bank policies, is a standard theoretical result with recent interpretation in the New Keynesian paradigms. It is also received wisdom among practitioners. The importance of the market perception of the central bank’s acceptable trade-offs between inflation and output goals as well its specific targets naturally leads to the question of how the market acquires this perception and whether and how it evolves over time. One view is that establishing an appropriate institutional structure is the key element in insulating the monetary authority from political pressure and thereby convincing markets that a central bank has a strong and unvarying aversion to inflation. A second, more dynamic, view focuses on the role that actual policy conduct plays in building the reputation of a central bank. These two different views have distinct implications for the relative importance of the institutional structure of a central bank, as compared to its conduct, for attaining and maintaining its credibility. A survey of the heads of central banks and prominent monetary economists reflects a belief that the credibility of a central bank is based more on its past actions than on institutional structures that afford it independence by insulating it from political concerns, although there is also a consensus that structurematters (Blinder 2000). Empirical research has found that institutional features related to central bank independence are associated with economic performance in cross sections of

Testing For Unit Roots In The Presence Of Multiple Trend Breaks: An Application To Chilean Inflation Rate Series

This paper is an application of the subject of testing for unit roots in a time series in the presence of structural change. The series used is that of the Chilean monthly inflation rate. A characteristic of this series is that, with the exception of the 1972-1977 period during which the inflation rate in Chile greatly accelerated then decelerated, the Chilean inflation rate over the 40-year period of the study stayed within a limited range. In spite of this relatively stable performance, the application of the standard unit root tests to the series results in the inability to reject the unit root. However, when a test that allows for three endogenously determined breaks in the slope of the trend function of the series is used to account for the structural change of the 1972-1977 episode; the result is a strong rejection of the unit root in favor of a, more reasonable, stationary characterization of the series.

Hversu vel tekst til með verðbólguspár greiningardeilda?

Í rannsókn þessari er metinn árangur fjögurra aðila í gerð mánaðarlegrar verðbólguspár á árunum 2000 til 2006. Flestar spárnar eru nokkuð svipaðar og í þeim er verðbólga að meðaltali vanmetin um tvo til sex punkta. Ekki mælast tölfræðilega marktæk tengsl milli þess hversu áreiðanlegar spárnar eru eftir tímabilum, þ.e. aðili sem spáir vel einn mánuðinn er ekki líklegri en annar til að spá vel í næsta mánuði. Við upphaf hvers mánaðar spá aðilar á markaði fyrir um verðbólgumælingu Hagstofunnar í viðkomandi mánuði en á rannsóknartímanum birti Hagstofan verðbólgumælingu í kringum 10. hvers mánaðar. Oftast eru spárnar betri en verðbótaþátturinn sem notaður var til að uppreikna verðtryggingu íslenskra skuldabréfa í upphafi mánaðar áður en verðbólgumæling Hagstofunnar birtist. Í greininni er kannað hvort hægt sé að færa sér þetta í nyt með skuldabréfaviðskiptum samkvæmt verðbólguspá áður en verðbólgumæling Hagstofunnar birtist. Lítil von er um að slík viðskipti skili hagnaði sökum viðskiptakostnaðar.

The Problem of the Yearly Inflation Rate and Its Implications for the Monetary Policy of the Czech National Bank

The yearly inflation rate might not always be an appropriate measure of inflation, mainly due to the fact that it does not provide up-to-date information on the level of inflation. The harmonic analysis shows that the yearly inflation rate deforms and delays the information with respect to the monthly inflation rate and is thus delayed behind the true inflation at yearly levels. This conclusion can be extremely important in the forecasting of the inflation rate at yearly levels and in the process of economic decision making. The problem of the yearly inflation rate is illustrated on the example of the monetary policy of the Czech National Bank. The cointegration analysis revealed the presence of the long-run relationship of the repo rate, the yearly adjusted inflation rate and the euro area repo rate in the analyzed period.

The stability of the Turkish Phillips curve and alternative regime shifting models

This article, presents empirical evidence supporting instability of the Phillips curve in Turkey. We employ the multiple structural break models and the Markov-switching models and then evaluate the performance of the two models. The data pertain to the monthly inflation rate in Turkey for the period of 1987 to 2004. The results show that the Turkish Phillips curve is not linear. There exists no evidence on the asymmetry in the inflation response to output gap. The persistence of inflation is found to be much lower than in linear models. After 2001, slight decline in persistence of inflation is observed. There exits weaker support for the Phillips curve for the periods where the policymakers attempt to take the advantage of the tradeoff between output and inflation relationship.

Pengaruh Tingkat Suku Bunga dan Inflasi terhadap Nilai Tukar Dollar Amerika (Pendekatan Model Linier Klasik, Autoregressive, dan Granger)

This research is empirically examined the factors fficting exchange rate. The examination will employ three models, namely, classical linier model, autoregressive, and granger. The data are drann from Indonesian monthly macro economics indicators, narnely, interest, inflation, and exchange rate. The data'is collected from 2005-2007. The empirical result of this research indicates that the most fficient model is Granger Causality Model. Moreover, the result also find that interest and inflation rate affect the exchanged rate.Keywords: Interest, inflation, exchange rate, classical linier model, autoregressiu.e, and granger causality model

The inflation rates may accelerate after all: panel evidence from 19 OECD economies

The stationarity of inflation has many important economic implications. Most panel-based empirical studies do not handle cross-sectional dependence, which will result in power distortion. This paper applies a nonlinear IV estimator to calculate the test statistic of panel unit root (Chang in J Econom 110:261–292, 2002), which accounts for general cross-sectional correlation. Using monthly inflation rates, two statistics proposed by Im et al. (J Econom 115:53–74, 2003) reject the unit root; however, the nonlinear IV statistic accepts the unit root. That is, the ignored cross-sectional correlation may lead to over-rejection of the unit root null. In a nutshell, unlike current literature, the inflation rates may accelerate after all.

A Note on the Efficient Estimation of Inflation in Brazil

This paper investigates the use of trimmed-mean estimators and time-series averaging as techniques for improving the signal-to-noise ratio in high-frequency price data. We show that trimmed-mean estimators substantially increase the efficiency of the aggregate estimator compared to the more standard mean-measures. In this way, these estimators also reduce a central bank's need to time-series average the monthly inflation estimates which greatly improves the timeliness of the inflation statistic. In the case of Brazil, we find that asymmetrically trimming 24 percent from the tails of the price-change distribution reduces the RMSE of the monthly inflation statistic as a measure of the inflation trend by 23 percent, making it as accurate as the 3-month average growth rate of the mean retail price measure. We also demonstrate that a 3-month lagged moving average of the optimal (asymmetrically) trimmed mean is as efficient an estimator of the 24-month centered moving-average retail price growth trend as the mean inflation rate averaged over any horizon.

The Relationship between Inflation and Inflation Uncertainty in Emerging Market Economies

A standard Generalized Autoregressive Conditional Heteroskedastic (q,v) model is employed to construct a measure of monthly inflation uncertainty in 12 emerging market economies, and the relationship between inflation and inflation uncertainty is examined using Granger‐causality tests. The results suggest that higher inflation rates increased inflation uncertainty in all the economies, providing strong support for the Friedman hypothesis. The evidence on the effect of inflation uncertainty on average monthly inflation is more mixed, with increased inflation uncertainty leading to lower average inflation in Colombia, Israel, Mexico, and Turkey, consistent with the Holland hypothesis, but to higher average inflation in Hungary, Indonesia, and Korea, consistent with the hypothesis of Cukierman and Meltzer.

Impact of Macroeconomic Announcements on the Stock Prices: An Empirical Study on the Turkish Financial Services Sector

The purpose of this study is to test the efficiency of the Turkish Markets in terms of the monthly inflation announcement effect. The study examines the reaction of the financial services sector to monthly inflation announcements, particularly, in case of unexpectedly low or high levels of inflation. Strong evidence emerges that the Turkish financial services sector does not react significantly to the announcements that are in line with the expectations. In other words, the cumulative abnormal returns around such inflation announcements are not significantly different from 0. The results of the robustness tests for no news, indicate that the t-statistics calculated by means of the Moving Average Approach are insignificant for the sector, which is in line with the results of the original approach. The results of the two robustness tests are found to be supporting the original findings of the adaptive approach.

Estimating memory parameter in the US inflation rate

We propose a new methodology using wavelet transformation to estimate the memory parameter in the US monthly inflation rate. Our results show that the series follows non-stationary process, which is not statistically different from I(1) process.

Panel data evidence on inflation convergence in the European Union

This letter investigates the extent of long-run inflation convergence among the major EU economies using panel data unit root and cointegration tests. Potentially, these methods have key advantages over time-series methods which, in the light of limited data, can suffer from power deficiency with a tendency to accept the null of nonstationarity or noncointegration. Using monthly inflation data over the period 1972–99, this study finds that inflation convergence was strongest during 1983–90 whereas the turbulence experienced within in the ERM in the early 1990s conferred some degree of macroeconomic independence among EU members.

Relationship between inflation rate and inflation uncertainty

To shed further light on the possible link between inflation rate and inflation uncertainty, the paper explores the relationship for US monthly inflation over 1926 to 1992 with various ARFIMA-GARCH-type models. It found that the inflation affected its uncertainty weakly negatively whereas the uncertainty affected the inflation insignificantly. The results were robust to the high inflation period of the 1970s and the volatile period of 1929 to 1945. It supports Engle’s result that a high rate of inflation does not necessarily imply a high variance of inflation, unlike Friedman’s view that a high rate of inflation leads to a high variance of inflation.

Private Sector Management: The Case of Russia

In the past decade, Russia has been moving from economic and political socialism toward economic and political democracy characterized by market principles of supply and demand. Until August 1998, Russia's small business sector was growing rapidly and dealing with the associated chaotic and often inconsistent economic transformation creatively, opportunistically and mostly off-the-books. This rapid growth came to an abrupt halt when Russia devalued the ruble by 183 percent in August 1998. Using longitudinal in-depth personal interviews, and benefitting from the knowledge and perspective of an ongoing research project begun in 1988, this article focuses on the performance, behavior, and values of managers in Russia's private sector in 1995, 1997, and October 1998. Specifically, the goals in this article are: (1) to describe and evaluate the performance of the Russian private sector in 1995, 1997, and 1998; (2) to portray the behavior and values of Russia's private-sector managers; (3) to present methods and extent of underreporting of economic activity; and (4) to assess the future of Russia's private sector. Historical Background Much has been written about Russia's perestroika, the economic restructuring that has been transforming the country from a centrally planned to a free market economy. Briefly, three distinct strategies have been used to transform Russia's economy: quick fix, gradual change, and (see Aslund 1989; Desai 1989; Goldman 1988; Kornai 1980; McCarthy, Puffer, and Shekshnia 1993; Shama 1993). The quick-fix strategy (1987-1989) sought to restructure the Soviet economy within a socialist, centrally planned, one-party system. Restructuring was intended to improve the efficiency of the existing system through fine-tuning that would allow limited market forces to operate within an otherwise centrally planned economy. During this period, many quick fixes were tried to stimulate the economy and failed because they threatened management and workers alike and resulted in lower production and higher prices. The gradual change strategy (1989-1991) produced numerous laws and comprehensive economic restructuring plans to increase the efficiency of the Soviet economy. Emphasis was put on price liberalization, conversion of manufacturing enterprises from military to consumer goods, and more liberal laws for and ventures. During this period, private-sector companies were legally allowed to operate as cooperatives and joint ventures, which stimulated the emergence and development of Russia's small business sector. This strategy produced shock without therapy and eventually brought about the failed coup of August 1991, leading to the disintegration of the Soviet Union, the formal secession of the Baltic states, the formation of the Commonwealth of Independent States (CIS), and the election of Boris Yeltsin as president of Russia. Gradual change had failed, and became inevitable. The strategy of (1992-present) produced a series of decrees which freed almost all prices, allowed private ownership of land, permitted privatization of collective farms, encouraged privatization of small enterprises, and enabled the transfer of many state enterprises into stock companies. In 1992, this strategy resulted in an annual inflation rate of 1,353 percent and a 20 percent decline in the GDP. By 1993, the monthly inflation rate was only 25 percent, and the rate of decline of the GDP had eased. Official Russian statistics continued to show a contracting economy in 1994, 1995, 1996, and 1998. Only in 1997 did official statistics show a modest growth in GDP and relatively low inflation. During this period of rapid transformation, Russian management, especially in the private sector, adapted resiliently and became market-oriented. Two elements of this emerging culture (which some termed wild capitalism) have been entrepreneurship and tax evasion, manifested in underreporting such a ctivities as production, sales, and profit. …

A GARCH Model of Inflation and Inflation Uncertainty with Simultaneous Feedback

We examine the relationship between inflation and inflation uncertainty using a GARCH model that allows for simultaneous feedback between the conditional mean and variance of inflation. We also derive a number of theoretical econometric results and illustrate the relevance of these results with an empirical example of the US monthly inflation process. Our results show that there is strong evidence in favour of a positive bi-directional relationship between inflation and inflation uncertainty in agreement with the predictions of economic theory.

Unit roots in the presence of abrupt governmental interventions with an application to Brazilian data

This paper considers econometric issues related to time-series data that have been subject to abrupt governmental interventions. The motivating example for this study is the Brazilian monthly inflation rate (1974:1–1993:6) which we use throughout for illustration. This series has been heavily influenced by the effect of so-called shock plans implemented by various governments starting in the mid-1980s. The plans act as ‘inliers’ in the sense that the series is temporarily brought down to low levels before returning to its previous trend path. We analyse the effects on standard unit root tests and measures of persistence caused by the presence of these ‘inliers’. We show a substantial bias in favour of concluding that the series is stationary and that shocks have temporary effects. We then construct appropriately corrected statistics which take into account the presence of the plans. These show, unlike the standard tests, that the stochastic behaviour of the inflation rate was indeed unstable over this period. Simulation results are presented to support the adequacy of our corrected statistics. Copyright © 1999 John Wiley & Sons, Ltd.