Price Level Instability Research Articles

Stability of gold standard and its selected consequences: A reply to prof. Howden

Since I am naturally biased in favor of the gold standard, I was glad when I found that Prof. Howden (2008) exerted effort to uproot the thesis presented in my paper «Stability of Gold
 ˆ
 Standard and Its Selected Consequences» (Kvasnicka, 2007) that the price level could be very unstable under the gold standard if the overall monetary stock of gold is relatively small, and one of its consequences, that this instability makes an independent restitution of the gold standard in a small country unlikely. No one would be happier than me if he succeeded. However, I will claim here that his critique failed. To show why, I will first summarize major points of my former paper and then comment on Prof. Howden’s critique. Since Prof. Howden concentrates only on the feasibility of the restitution of the gold standard in the present world, I will not defend all the propositions made in my former paper, but will confine myself to the question whether a small country adopting the gold standard independently in the present world would or would not suffer from the price level instability and trade cycles caused by such a gold standard.

UK inflation forecasts since the thirteenth century

Historians have suggested there were waves of inflation or price revolutions in the UK (and earlier England) in the 13th, 16th, and 18th centuries, prior to the ongoing inflation since 1914. We study retail price inflation since 1251 and model its forecasts. The model is an AR(n) but allows for gradually evolving or drifting parameters and stochastic volatility. The long-horizon forecasts suggest only one inflation wave, that of the 20th century. We also use the model to measure inflation predictability and price-level instability from the beginning of the sample and to provide measures of real interest rates since 1695.

The validity of uncovered interest parity: Evidence from african members and non-member of the organisation of petroleum exporting countries (OPEC)

This paper re-examines uncovered interest parity (UIP) puzzle using Africa where there is dearth of studies. It extends the previous literature in the following ways. It captures the heterogeneity (oil and non-oil sources of shocks) in the region by considering both African members of the Organisation of Petroleum Exporting Countries- OPEC (Algeria, Nigeria and Angola) and non-member (South Africa) to ensure generalisation of findings. It also explores asymmetric exchange rate responses to diverse monetary policy stances from a new dimension by explicitly measuring asymmetries and capturing long- and short-run dynamics using the new non-linear autoregressive distributed lag (NARDL) and asymmetric component AC-GARCH models along with other recent methods for results' robustness. Results from alternative methods show that UIP fails to hold in the African members and non-member of OPEC which is attributable to capital mobility restrictions and currency risk. However, asymmetric and permanent/transitory exchange rate response to monetary policy stances was noticed with little evidence of risk premium dynamics and role of price level instability in UIP validity.

Price-level instability and international monetary policy coordination

AbstractIn a two-country open economy model, Bencivenga, Huybens, and Smith [2002, What to Stabilize in the Open Economy, International Economic Review 43, 1289–1307] investigate three policy regimes and find that a fixed exchange rate regime, where the country with the lowest reserve-to-deposit ratio is charged with maintaining the fixed rate, and a price-level targeting regime are both more prone to price-level instability than a constant money growth rate regime. This paper, by replacing their “helicopter drops” assumption with an open market operations assumption, shows that the two rules of fixing the money growth rate and targeting the time path of the price level work equally well. Additionally, under a regime of fixed exchange rates, it does not matter which country is charged with keeping the fixed exchange rate.

Nominal anchors for monetary policy: a doctrinal analysis

Volatility of the general price level has long been an issue of concern and debate in economics and government policies. Periods of price-level instability have stimulated proposals for monetary reform aimed either at price-level stabilisation or mitigating the adverse effects of price-level instability. The nominal anchor issue refers to the orientation of monetary policy towards the goal of providing a stable price level. JEL Codes: E52

Bank regulation as an antidote to price level instability: A ‘real bills’ model that yields ‘quantity theory’ prescriptions

We use an overlapping generations model with a risky storage technology to describe a new type of ‘sunspot’ equilibrium characterized by excessive price level volatility and overinvestment in stored goods. The features of this equilibrium lead us to interpret it as involving ‘speculation’ and as arising when banks create excessive quantities of money. This interpretation provides welfare justification for imposing quantity limits on the bank money stock. We argue that the monetary regime established in England under Peel's Act imposed such a quantity limit. Our findings support quantity theorists' traditional view that the possibility of ‘overissue’ provides a rationale for bank regulation.

General price level instability and the variability of relative prices in Switzerland

The relationship between inflation and relative price change variability is studied in the context of a stochastic, rational expectation, multigood equilibrium model. The model implies a stable regression function which characterizes the relationship between the relative price change variance and the squared unexpected inflation rate. The main theoretical implications of the model are empirically tested using monthly Swiss data.

PRICE‐LEVEL INSTABILITY AND OUTPUT IN THE U.S.

Economic InquiryVolume 21, Issue 2 p. 172-187 PRICE-LEVEL INSTABILITY AND OUTPUT IN THE U.S. PAUL EVANS, PAUL EVANSSearch for more papers by this author PAUL EVANS, PAUL EVANSSearch for more papers by this author First published: April 1983 https://doi.org/10.1111/j.1465-7295.1983.tb00624.xCitations: 5 Stanford University. I should like to thank two anonymous referees for helpful suggestions. AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Citing Literature Volume21, Issue2April 1983Pages 172-187 RelatedInformation

PRICE‐LEVEL VARIATIONS AND THE TENETS OF HIGH‐GRADE INVESTMENT*

THE TOPIC ASSIGNED to us for discussion at this meeting clearly implies that there may be price-level variations in this country in the future and that they may be of sufficient moment to require appropriate investment policies. It would therefore be reasonable to debate either the outlook for price levels over the longer term or the nature of conservative investment policies which would best meet the probable situation. However, it has been officially suggested to me that we might focus attention on the suitability of common especially the variety known as growth stocks, as high-grade investment vehicles in a period of price-level instability. This is my purpose; and in discussing stocks I shall mean those of competitive industrial and commercial companies only. Although it is not my intention to involve this meeting in attempts to predict the long-range economic future of the country, it seems idle to discuss investment dispositions without noting the general nature of the situations for which we must be prepared. Obviously, we would not all agree on the details of the economic road ahead, but I suspect that most of us expect a continuation of welfare-minded monetary and public budget interventionism, major emphasis on fullemployment objectives, a secondary hope for price stability and a balanced budget, large-scale public expenditures, and extensive research and development efforts by both public and private agencies. Conceding that all quantitative estimates must be liberally sprinkled with plus-and-minus signs, it would appear that a middle-of-the-road investment planner might reasonably visualize the coming decade as follows: 1. General characteristics of high-level and growing output, moderate cycles of buoyancy and recession greatly influenced by monetary and public budget manipulation, long-term money rates swinging widely in and about the 1958 range, and an intermittent price-level inflation averaging about 1 per cent per annum, firmly underwritten by habitual cost-push pressures.

Social Pressures Stability and Full Employment*

TODAY IT IS POINTLESS to prolong the discussion whether full employment is the 'dangerous experiment of the socialist planners' or the 'hypothetical position to which impersonal market forces tend to push our economy' for today, full employment is a continuing reality. This is not to imply, however, that full employment as the sole object of government policy has been as yet squarely put to the test of public opinion. We have enjoyed this condition not because it was politically expedient or socially desirable, but rather because it has been militarily necessary. And as long as international tension exists, as long as our foreign policy is oriented to our determination to negotiate from a 'position of strength', as long as we are determined to fill the vacuum of power created by post-war disarmament, full employment will very likely (however inadvertently) be the by product of these policies.' But even in the absence of world tension, the continuing experience of full employment has undoubtedly created a climate in which governments could anticipate a favorable mass conditioned-reflex to measures designed to maintain jobs-for-all. The full employment of the last decade has not been, however, an unmixed blessing. The greatest single problem coexistent with full employment has been the instability of the general price level-an instability largely generated by the income drives of consolidated pressure groups in our society, income drives made more effective by the existence of full employment itself. But price level instability, many reason, results simply from the imbalance between money demand and physical supply, and the former may be readily controlled through budgetary, tax and credit policies. This argument, offering solutions to the problem of instability seemingly beautiful in their simplicity, largely ignores the social setting into which the above 'solutions' must be projected. The purpose of this paper is to examine the socio-psychological pressures which greatly com-