Relative Inflation Rates Research Articles

Empirical Analysis of Factors Influencing RMB Exchange Rate Volatility in the Context of RMB Internationalization

This paper selects and collates data on exchange rate volatility and its related influencing factors in China from 2002 to 2022 as a research sample, explores the causes of RMB exchange rate volatility in the context of RMB internationalisation, and proposes policy recommendations on how to maintain exchange rate stability in the process of RMB internationalisation. Using RMB exchange rate volatility as the explanatory variable, the following results were obtained by building a multiple linear regression model and introducing conditional variables to indicate the degree of RMB internationalisation: the amount of foreign exchange reserves, the Sino-US interest rate differential and the balance of payments differential have significant effects on RMB exchange rate volatility, while foreign direct investment, the relative inflation rate between China and the US and the GDP growth rate have insignificant effects on exchange rate volatility.

The Impact of Retail E-Commerce on Relative Prices and Consumer Welfare

Abstract This paper examines the impact of retail e-commerce on pricing behavior and welfare. Using Japanese data, we find that e-commerce lowered relative inflation rates for goods sold intensively online. We use long time series and historical catalog sales as an instrument for e-commerce sales intensity. The entry of e-commerce firms raised the rate of intercity price convergence in physical stores for goods sold intensively online, but not for other goods, which suggests e-commerce enhances price arbitrage. We estimate that e-commerce lowered variety-adjusted prices on average by 0.9 percent between 1996 and 2014, and more in cities with highly educated populations.

How different are Monetary Unions to national economies according to prices?

AbstractNot that different. Based on a unique dataset of semi‐annual microeconomic price levels of goods and services across and within countries for 1990:1–2018:2, we show that time‐series volatility and cross‐sectional dispersion of law‐of‐one‐price deviations are similar for pairs of cities within the same country and across the Eurozone eleven original members. Our empirical analysis reveals that inflation and nominal exchange rate volatility/dispersion across locations have a positive impact on the volatility/dispersion across locations of law‐of‐one‐price deviations across the globe. Furthermore, dispersion of law‐of‐one‐price deviations across goods falls when the relative inflation rate between these locations rises, suggesting that the degree of price adjustment in individual product markets within a country has an international component shaped by international trade and arbitrage considerations. According to this measure of price integration, economies within the monetary union are half‐way to the level of integration characterizing national economies. Moreover, monetary union membership is associated with lower volatility of law‐of‐one‐price deviations, placing member countries more than half‐way towards the volatility levels characterizing national economies.

A Bayesian Change Point Analysis of the USD/CLP Series in Chile from 2018 to 2020: Understanding the Impact of Social Protests and the COVID-19 Pandemic

Exchange rates are determined by factors such as interest rates, political stability, confidence, the current account on balance of payments, government intervention, economic growth and relative inflation rates, among other variables. In October 2019, an increased climate of citizen discontent with current social policies resulted in a series of massive protests that ignited important political changes in Chile. This event along with the global COVID-19 pandemic were two major factors that affected the value of the US dollar and produced sudden changes in the typically stable USD/CLP (Chilean Peso) exchange rate. In this paper, we use a Bayesian approach to detect and locate change points in the currency exchange rate process in order to identify and relate these points with the important dates related to the events described above. The implemented method can successfully detect the onset of the social protests, the beginning of the COVID-19 pandemic in Chile and the economic reactivation in the US and Europe. In addition, we evaluate the performance of the proposed MCMC algorithms using a simulation study implemented in Python and R.

Stock market performance and cross-border mergers and acquisitions in South Africa

Purpose Since the attainment of fully fledged democracy in 1994, South Africa witnessed a substantial increase in both the number and the value of completed mergers and acquisitions (M&As) targeting South African firms. In spite of this development, studies on foreign direct investment (FDI) on South Africa have not looked at determinants of entry-mode choice of FDI such as M&A. The purpose of this paper is to fill the gap in the literature by investigating locational factors that make South Africa an attractive destination for M&A activity in Africa. Design/methodology/approach The authors analyse both the number and the value of M&As, the dependent variable. They analyse the number of firms acquired each quarter in South Africa from 1991 to 2014 using a count model – the negative binomial model. They then compare the results for this model with those of benchmark models such as the normal count and the Poisson count models. In this paper, the authors test for stationarity of the time series using the Augmented Dickey–Fuller (ADF) and the Kwiatkowski–Phillips–Schmidt–Shin (KPSS) tests. They examine the long-run relationship between the value of M&As and the selected macroeconomic variables using Johansen’s co-integration technique. Findings This paper finds that both the number and the value of M&As in South Africa are positively influenced by the performance of the Johannesburg Securities Exchange during the period 1991 to 2014. This result confirmed the expectations hypothesis that stock markets facilitate M&A activity. The authors also observed that other financial and macroeconomic variables – exchange rate volatility, relative inflation rate and economic growth – are important locational factors for M&A activity. Among these factors, the exchange rate volatility exerts the greatest influence on M&As. The rate of growth of gross domestic product (GDP) matters for M&A activity in emerging market economies such as South Africa. Research limitations/implications The data for the number of M&As are more complete than that of values. This is because some firms choose not to report the value of deals after a transaction takes place, resulting in missing data for the value of M&A deals. Practical implications This paper shows the important role played by pull factors on the direction of capital flows in the long run. It is recommended that policy-makers should further strengthen and improve the efficiency of domestic financial markets. Stable and reliable monetary policy framework that maintains low levels of inflation and mitigates the volatility of exchange rate is important for FDI and M&A flows to emerging market economies. There is a need to put the necessary measures in place to improve South Africa's economic growth rate, which has been weak since the global financial crisis of 2008. Originality/value Most academic literature has examined determinants of aggregate FDI without consideration of entry-mode choice. This paper focused on the M&A entry-mode for an emerging market economy. The authors show that equity markets play a key role in facilitating M&A activity. The expectations hypothesis by Nelson (1959) that stock markets facilitate M&A activity is confirmed in this way for South Africa.

TESTING FOR A J-CURVE EFFECT ON U.S. � INDIA TRADE

ABSTRACT The United States recently announced a 25 percent and a 10 percent tariff on the import of steel and aluminum respectively with an objective to lower its trade deficit with some of its trading partners. A tariff on imports impacts both the importing and the exporting countries. In importing nations, a tariff on imports raises their domestic price, thereby lowering their imports and leading to the improvement in the country’‘s trade balance in the long run. In the short run, however, since it takes consumers to adjust their demand to a change in price, a tariff led price increase of an importable only increases import bills leading to a worsening of the nation’‘s trade balance. This short-run worsening followed by a long-term improvement of trade balance caused by a depreciation of domestic currency produces what is called the J-curve effect. If this phenomenon exists then an improvement in U.S. trade balance with steel and aluminum exporting countries may lead to the appreciation of the U.S. dollar against their currencies resulting in an inverse J-curve effect, meaning a short-run improvement and a long-term deterioration of U.S. trade balance with those countries. We examine the J-curve effect on the trade between the U.S. and India. Our dependent variable is XTM measured as U.S. export to India over U.S. import from India, and the independent variables are URGDP (U.S. real GDP), IRGDP (India’‘s real GDP), RREX (the U.S. dollar’‘s real exchange rate defined as the number of U.S. dollar needed to purchase one Indian rupee, INR) after adjusted for U.S. relative inflation rate). Our study covers the data from 1992 to 2016. Since our model variables are found to be I(1), we conducted a cointegration test. Both the Rank test and the Max-Eigen Value test allowed us to estimate a vector error correction model (VECM). The estimation of the VECM shows that, in the long run equation, the coefficient associated with the variable is positive while in the short-run equation, the coefficients associated with the variables and are positive as expected but insignificant, which implies that a depreciation/appreciation of the U.S. dollar will have no effect on U.S. trade balance with India in the short run. We found no presence of J-curve effect in trade between the U.S. and India. Our finding also indicates that if the tariff results in an appreciation of the U.S. dollar, then it will not affect the U.S. trade balance with India in the short run and will only deteriorate trade balance in the long run. Keywords J-curve effect, export-to-import ratio, exchange rate, unit root, cointegration

Magmatic crystal records in time, space, and process, causatively linked with volcanic unrest

How a volcano has behaved throughout its past is a guide to its future behaviour. Detailed knowledge of what preceded eruptions from specific volcanoes, and how this can be recognised in real-time, are pivotal questions of this field. Here, the physical history of the magma that erupted in 2010 from the flank of Eyjafjallajökull volcano, Iceland, is reconstructed in absolute time and space using only chemical records from erupted crystals. The details of this reconstruction include the number of magma bodies, their geometry, their depth, their relative inflation rate and changes to all of the aforementioned through time. Petrology and geodesy (data gathered in real-time) arrive at the same set of conclusions. As such, we report detailed agreement, which demonstrates a causative link between knowledge determined post-eruption via a physical–chemical perspective and knowledge gained syn-eruption from monitoring signals.The composition of olivine crystal cores (∼Fo74–87), and that of the chemical zonation around each core caused by disequilibrium processes, are shown to form systematic patterns at the population scale. Reverse zonation (toward Mg rich) exhibits a constant chemical offset from its crystal core (≤2 mol % Fo), while normal zonation (toward Fe rich) converges to a single composition (∼Fo75). Conventional petrological models — for instance multiple-magma-mixing across a range of crustal depths — can explain the presence of a range of crystal core composition in the erupted rocks, but cannot explain these patterns of crystal disequilibria.Instead, we describe how a single primitive melt produces crystals over a wide range in composition and generates systematic disequilibrium. Cooling causes crystal production from both roof and floor of a horizontal magma geometry. Crystal settling causes asymmetric thermal – and therefore compositional – stratification of the melt due to progressive insulation via development of a crystal mush at the floor, a process we term “Crystal Rain”. Crucially, each crystal's record is both a cause and effect of the internal process of simultaneous fractional crystallisation and settling; no external processes or materials are required.We then extract temporal information from our crystals using Fe–Mg interdiffusion modelling, and combine it with the composition and zonation data. The concept of Crystal Rain is applied, and resolves two thin (metres) sills which are staggered in time and depth, and exhibit different inflation rates. Since the approach of integrating crystal chronology within a causative physical framework may be applied to entire volcanic successions, it has potential to yield valuable insights to past, and by inference future, magmatic and volcanic behaviours by deterministic means.

Excess comovements between the euro/US dollar and pound sterling/US dollar exchange rates

ABSTRACTThe aim of this article is to discuss excess comovements of the euro/US dollar and pound sterling/US dollar exchange rates, i.e. we look for comovements of exchange rates which are stronger than implied by the fundamentals. The results of the empirical analysis provide evidence that excess comovements exist for the two exchange rates. A long-run analysis of correlations can verify that a link exists between the correlation dynamics of exchange rates, relative inflation rates, long-term interest rates, economic sentiments and money supply. We find that common movements of money supply, prices and economic sentiments each play a major role in comovements of the exchange rates. From the investigation of the two exchange rates, we conclude that macroeconomic fundamentals can account for the comovement but that common non-fundamental factors also have major significance for the exchange rates.

Relationship between inflation and relative price variability in India

ABSTRACTThe paper attempts to investigate the relationship between relative price variability (RPV) and aggregate inflation rate through parametric and semi-parametric methods (kernel regression method). Monthly data of wholesale price index is used for the period from February 1995 to March 2014 for this purpose. Both the parametric and semi-parametric methods lead us to the non-monotonic relationship between RPV and inflation. An attempt has also been made to determine the optimal inflation rate that would minimize RPV.

Inflation Differentials across Regions in Turkey

Abstract The aim of the present article is to analyze the convergence of regional inflation rates in Turkey from 2004 to 2015 by adopting sigma convergence and distribution dynamics approaches. The outcomes of our research can be summarized in two groups. First, inflation disparities tend to decline over time, especially during the post-crisis period after 2010. Hence, the aggregate price stabilization and disinflation process in Turkey is coupled with convergence in inflation rates across regions. Second, in addition to the findings in the literature, we find that regions change their relative inflation rate positions quite often. This indicates that regional inflation behavior is random and non-structural, as the relatively high and low inflationary places tend to change their quintiles frequently. The results imply several policy suggestions. First, achieving inflation convergence is a harder task than initially understood, as it seems to show random behavior. Second, trade integration can be an option to foster regional price convergence.

Understanding the space–time (in)consistency of the national accounts

Space–time consistency means that an earlier PPP, updated by relative inflation rates, equals a more recent PPP. I show that in the absence of data errors Divisia price indices are space–time consistent provided that the consumer’s utility function is homothetic.

Collateral, Default Penalties and Infinite Horizon Equilibrium

Pascoa and Seghir (2009) noticed that when collateralized promises become subject to utility penalties on default, Ponzi schemes may occur. However, equilibrium exists in some interesting cases. Under low penalties, equilibrium exists if the collateral does not yield utility (for example, when it is a productive asset or a security). Equilibrium exists also under more severe penalties and collateral utility gains, when the promise or the collateral are nominal assets and the margin requirements are endogenous: relative inflation rates and margin coefficients can make the income effects dominate the penalty effects. An equilibrium refinement avoids no-trade equilibria with unduly repayment beliefs. Our refinement differs from the one used by Dubey, Geanakoplos and Shubik (2005) as it does not eliminate no trade equilibria whose low delivery rates are consistent with the propensity to default of agents that are on the verge of selling.

Expression of InnVit/FBXO11 in vitiligo and its role in tyrosinase export from endoplasmic reticulum

To investigate the roles of InnVit (FBX011) gene in melanocytes by detecting the expression of InnVit gene in vitiligo and analyzing the impact of InnVit gene on morphology of endoplasmic reticulum (ER) and the tyrosinase export from ER. The lesion tissues and the donor tissues were collected from 10 vitiligo patients to examine the InnVit gene expression by immunohistochemistry. Synthesized specific siRNA and constructed plasmid P3XF-P120 were separately transfected into cells for the silence and over-expression of InnVit gene with lipofectamine(TM) 2000. The untreated cells were used as control. Morphology of ER of cells from the above three groups was observed under electron microscope. Co-localization of tyrosinase and calreticulin was identified by confocal laser scanning microscopy. InnVit, tyrosinase and calreticulin were examined by Western blot. In vitiligo patients, the expression of InnVit gene in the lesions was markedly lower than that in the donor tissues. The normal morphology of ER was found in the untreated and the plasmid groups whereas inflated ER was shown in siRNA group. And the relative inflation rate in siRNA group (1.97 +/- 0.48) was higher than that in the untreated group (1.28 +/- 0.09) and plasmid group (1.24 +/- 0.13) (both P = 0.001). In the untreated and the plasmid groups, tyrosinase was expressed beyond the scope marked by ER marker protein calreticulin partly, but co-localized with calreticulin in ER in the siRNA group. Western blot showed that, contrast to the untreated group (0.320 +/- 0.020), a lower expression level of InnVit in the siRNA group (0.030 +/- 0.004, P = 0.001) and a higher expression of InnVit in the plasmid group were shown (0.710 +/- 0.040, P = 0.001). No significant difference about the expression level of calreticulin was observed among the three groups (P > 0.05). As compared with the untreated group (0.350 +/- 0.030), a higher tyrosinase level in the siRNA group (1.040 +/- 0.060, P = 0.001) and in the plasmid group (0.720 +/- 0.030, P = 0.001) was found. And the former was higher than the latter (P = 0.001). A lower expression of InnVit is observed in the lesion tissues than in the donor tissues from vitiligo patients. The InnVit gene can have an impact on the morphology of ER and tyrosinase export from ER. And it may further affect the function of melanocytes.

Excess Comovements between the Euro/US Dollar and British Pound/US Dollar Exchange Rates

The aim of this paper is to discuss excess comovements for the Euro/US dollar and British pound/US dollar exchange rates, i.e. we look for comovements of exchange rates which are stronger than implied by fundamentals. The results of the empirical analysis give evidence that excess comovements indeed exist. A long-run analysis on correlations can verify that the correlations dynamics of exchange rates, relative inflation rates, long-term interest rates, economic sentiments and money supply are linked. We found that money supply and prices play major roles. From the investigation of our exchange rate pair it becomes obvious that non-fundamental factors in exchange rates have an important meaning for modelling foreign exchange rates.

On the welfare benefits of an international currency

Is it beneficial for a country's currency to be used internationally? And, if so, can we quantify the benefit? Since the emergence of the euro, there has been great interest in the consequences of a transfer of the dollar's premier international role to the euro. This paper presents a novel model-based approach towards assessing the welfare benefits associated with the international use of a country's currency. Apart from the familiar benefits associated with seigniorage, residents of the issuing country experience an increase in the purchasing power of their currency both at home and abroad. In the calibration exercise carried out in this paper, we find the benefits of an international currency to be quantitatively significant. The welfare gain for the Euro area in having the euro internationally used ranges from 1.9% to 2.3% of consumption depending on relative inflation rates. The rest of the world is not indifferent as to which currency circulates as the dominant international currency. Conditional on their currency not being used internationally, their preference is for the dominant international currency to be the one with the lowest inflation rate.

Exchange rates, and fundamental variables: a semi-parametric analysis of binary choice

This study is motivated by the dearth of models that provide good out-of-sample fit for exchange rates. That is, current models of exchange rate behaviour are poor predictors of subsequent currency movements. An attempt is made to determine if the relationship between exchange rates and fundamental variables can help explain the more extreme exchange rate movements (distributional switches). Models are developed that relate fundamental economic variables to the resulting estimates based on the mixture of normal probability distributions. Parametric estimation procedures (Logit and Probit) are compared with a semi-parametric technique, maximum score estimation (MSCORE), which is relatively untested in the field of finance. The fundamental variables of these models include information on trade balances, money supply changes, interest rate changes, real economic growth, relative inflation rates and changes in stock market indexes. Classification results favour MSCORE. Implications of results and improvements in methodology are discussed.

Mark-up fluctuations and fiscal policy stabilization in a monetary union

We study optimal monetary and fiscal stabilization policies in a two-country, micro-founded model of a monetary union featuring price rigidities, monopolistic competition and (inefficient) mark-up shocks. With symmetric rigidities, fiscal policy is not employed in stabilizing union-level variables. Countries' relative spending levels, however, are used to stabilize relative inflation rates and the terms of trade. Under commitment, both monetary policy and relative spending are inertial, while this is not the case under discretion. Numerical analyses indicate substantial welfare gains from commitment and from fiscal stabilization. We conclude by investigating some simple monetary and fiscal policy rules.

Decentralization and Inflation: Commitment, Collective Action, or Continuity?

Do political and fiscal decentralization make it easier or harder to control inflation? Statistical analysis of average annual inflation rates in a panel of 87 countries in the 1970s and 1980s found no clear relationship between decentralization and the level of inflation. Political decentralization, however, does appear to reduce change in countries' relative inflation rates over time. By creating additional veto players, federal structure may “lock in” existing patterns of monetary policy—whether inflationary or strict. Among the (mostly developed) countries that started with low inflation, inflation tended to increase more slowly in federations than in unitary states. Among the (mostly developing) countries that started with high inflation, inflation tended to increase faster in the federations. There is evidence that political decentralization locks in a country's degree of practical central bank independence—whether high or low—and the relative hardness or softness of budget constraints on subnational governments.

The Changing Political Economy of Inflation

A type of conventional wisdom has developed among many scholars that industrialized countries with independent central banks produce lower relative inflation rates than countries that do not have these institutions. We argue that the relative importance of central bank independence for fighting inflation changed fundamentally from the 1970s to the 1980s as a result of experiences in the advanced industrialized democracies, which led both Right and Left governments to move toward more neo-liberal macroeconomic policies. As governments made price stability more of a priority, the anti-inflationary effects of independent central banks would become much less pronounced. This hypothesis is tested and confirmed in the study in a multi-variate regression analysis using data from eighteen industrialized democracies.

Monetary Policy and Regional Price and Wage Dispersion in the U.S.

It is generally accepted that certain fiscal policies have strong local impacts. However, it is considerably less obvious that national fiscal and mon-etary policies will have significantly different impacts on areas as large as states or census regions. This paper focuses on the impact of U.S. monetary policy on relative inflation and wage growth rates for four large regions within the U.S. The results suggest that the conditional variance of aggregate monetary policy shocks, estimated from an ARCH process, increases the dispersion of regional inflation and regional real wage growth rates for the four U.S. census regions.