Relative Price Variability Research Articles

Income and Transport Cost: Multiple Responses to Tourists Arrivals in Zanzibar

The tourism sector plays an important role in the Zanzibar economy and continues to be a leading sector and the main contributor to the national GDP but this sector is faced unprecedented challenges and an existential threat from the impact of the COVID-19 virus. In this regard, this study aimed to analyse the determinants of international tourism demand from the top ten tourist’s origin countries to Zanzibar from 2005 to 2021 and to quantify their influence. In this study Gray’s travel motivation theory, Crompton’s motivations for pleasure vacation theory and Dann’s theory of push and pull factors were used to analyse behaviour of tourists and choice of destination. The study adopted panel data analysis and used long, strong balanced secondary panel data extracted from various sources to estimate the impact of GDP per capita as proxy of income, exchange rates, tourism infrastructure, price of crude oil as proxy of transport cost, consumer price indices adjusted by exchange rates as proxy of relative price and dummy variables to capture effects of Covid-19 and economic recession of 2008 on number of tourist arrivals as proxy for tourism demand in Zanzibar. Regression results of fixed effect model suggested that; at the 0.05 significance level, a one unit increase in GDP per capita results into 1.999 units increase in number of tourist arrivals and one unit increase in transport cost would decrease tourist arrivals by 64.991 units. Coefficients value of dummy variable COVID-19 implies that, on average, the number of tourist arrivals decreased on the year of occurrence of COVID-19 pandemic by 9,539 units. The coefficients of other independent variables exchange rates, tourism infrastructure, relative price and economic recession of 2008 bear the right sign even though they were not statistically significant at 0.05 levels. This study recommends that, the government and other stakeholders to work on marketing Zanzibar tourism product to the high-income countries and to work on reducing transport cost from origin countries to Zanzibar.

Threshold inflation and relative price variability – a proposal for inflation targeting in Lebanon

PurposeThe study investigates the impact of inflation on the variability of relative prices in the context of Lebanon.Design/methodology/approachUnlike the traditional method, which relies on the variance of cross-sectional price changes measured at specific points in time to gauge the variability in relative prices, we employ a more appropriate approach. Under this approach, we capture the dispersion in relative prices by estimating how widely (or closely) a set of commodity prices drift apart over a span of time, offering a more comprehensive assessment. Firstly, we employ Johansen’s cointegration test on rolling subsamples to determine the number of statistically significant cointegrating vectors among the prices of 12 major commodity groups. Under this approach, an increase in the number of significant cointegrating vectors indicates a reduction in relative price variability, while a decrease suggests the opposite. Subsequently, we employ ordinary least squares regression to analyze how the fluctuations in inflation affect the variability in relative prices. The sample period ranges from December 2007 to April 2021.FindingsThe empirical results indicate that there exists a certain threshold inflation rate corresponding to which the variability in relative prices is minimized. More importantly, consistent with the theoretical predictions, the results suggest that it is not inflation per se, but the deviation of inflation from the 3% threshold level in either direction that causes higher dispersion in relative prices.Research limitations/implicationsThe empirical findings from this study have crucial implications for the operation of monetary and fiscal policy. In particular, these findings suggest that stabilizing long-term inflation around a certain threshold rate will not only help to anchor inflation expectations effectively but will also minimize the welfare costs associated with inflation.Originality/valueGiven the rising inflationary pressure in the recent past and its welfare costs, the study assumes crucial importance in understating how fluctuations in inflation distort the relative price structure and eventually cause resource misallocations and economic inefficiency.

Kajian Simpanan Biji Pala Oleh Petani Di Desa Morela Kecamatan Leihitu Maluku Tengah

The habit of storing the harvest in the form of nutmeg is something that has become a culture among the people of Morela village, Leihitu District, Central Maluku Regency. This research will examine theoretically the economic variables that influence the storage of dry nutmeg seeds by farming households. To analyze the relationship between variables that cause savings choices, an inter-time model is used. The choice is based on the meaning of the present and future times. If the present time is more meaningful then farmers will sell the nutmeg seeds they have and conversely if the future time is more meaningful it will increase the amount of nutmeg savings. The variables included in this research are relative price variables, current income and future income. This research uses primary data through interviews and questionnaires. The samples taken based on the purposive random sampling method were 75 farmers in Morela village. To analyze the magnitude of the influence of the independent variable on the dependent variable, cross-section regression was used using the Eviews tool. The results of the research show that the price variables at harvest, the estimated future price of cloves, and future consumption influence the clove savings of farmer households.

On the dynamic effects of the cross‐section distribution of sectoral price changes in China

AbstractThis paper investigates the dynamic interactions of the cross‐section distribution of sectoral price changes and the output growth in the Chinese economy. We compare in depth the results of Granger causality tests, Impulse Response, and Forecast Error Variance Decompositions from Mixed Sampling Frequency Vector Autoregression (MFVAR) with those from common frequency vector autoregression (VAR). It shows that potential causalities for inflation, relative price variability, relative price skewness, and output growth can be successfully detected by the MFVAR. The cross‐section distribution of sectoral price changes stands to be a fundamental determinant of fluctuations in the aggregate economy, not only in the short run but also in the long run. Moreover, the empirical results are robust to the identification restrictions imposed as well as to alternative measures for model variables. Our findings are in line with the predictions of a standard sticky‐price model, and thus pricing frictions are important factors behind the short‐run nonneutrality of nominal shocks. We highlight the primacy of the information contained in the higher‐order moments of cross‐section distribution of sectoral price changes. We propose that policy authorities should make proper use of all of the valuable information available, particularly those embodied in the distribution of sectoral prices.

Food Price Inflation and Relative Price Variability in India: Evidence from Decomposition Analysis

The present study examines the decomposition of relative price variability into two components (i.e., inflationary and real factors) in India using monthly data on 105 commodities prices over the period January 2005 to March 2017. The analysis of the study revealed that under primary food articles, 53% of relative price variability is due to real factors, and the remaining 47% due to inflationary factors. Whereas for manufactured food products, 30% of relative price variability is due to real factors, and the rest of the 70% due to inflationary factors. Overall, the important conclusion that emerges from the analysis is that few commodity prices have a larger contribution to relative price variability in the food basket. The majority of commodity prices under primary food articles have a larger contribution to variability in relative price changes, whereas under manufactured food products have the least contribution. Moreover, this study also accounts for wholesale price index and consumer price index non-food commodities to identify to which extent relative price variability is determined by real and inflationary factors. JEL Classifications: E30, E31, Q11, L66

Input substitution and relative input price variability in timber markets

Timbers of multiple tree species and sizes are often traded in a single market. Some previous studies have empirically examined their price interdependences, but the drivers of such relationships remain unclear. I demonstrated with a rational expectations model that when timbers of two species (or sizes) were gross substitutes in production, the steady-state ratio between their prices was dependent on their relative quality and ease of substitution in production. The relative input price variability — the variance of the deviation of the relative price from its steady-state value — was a function of shocks in tree growth and demand for the output, negatively related to the ease of substitution. A case study illustrated that the relative price between pine (Pinus L.) pulpwood and hardwood pulpwood, as well as its variance, drastically decreased during the period of 2001–2016, as compared with 1986–2000, in the United States South, whereas the relative price between pine pulpwood and pine chip-n-saw was more stable. One possible explanation was that the emergence of novel forest products may have altered the relative quality and substitutability between pine pulpwood and hardwood pulpwood in the manufacturing process.

Price controls, hyperinflation, and the inflation–relative price variability relationship

Chile established between 1970 and 1973 a fixed price policy for many products that was eliminated at the end of 1973 following a military coup. We use these pricing policies and their subsequent removal to determine how inflation affects relative price variability under contrasting price regimes and a hyperinflationary environment. We do so using unique monthly data for 23 food products between January 1970 and May 1982. We construct different relative price variability measures and consistently find that the sensitivity of relative price variability to inflation is larger when there is price-fixing.

Inflation Dynamics in Nigeria

Inflation remains a central issue to policy makers and analysts. High inflation induces uncertainty, adversely affects financial sector development and it is the goal of monetary authorities to achieve price stability in consonance with the general consensus that price stability aids growth of the economy. Despite the goal of single-digit inflation rate by monetary authority (CBN), the Nigerian economy is still practically characterized by high cost of living, increased variability of relative prices of goods and services; therefore the reliability of the monetary aggregates as the main signal for the conduct of monetary policy for control of inflation has become increasingly questionable. Against this backdrop, this research examined the determinants of dynamics of inflation in Nigeria over a period of 36 years (1982-2016); using New Keynesian Philips Curve theoretical framework, Ordinary Least Square estimation techniques (OLS), ARDL bounds testing approach to cointegration and Vector Autoregressive (VAR) econometric techniques to ascertain if inflation is only a monetary phenomenon in Nigeria having inflation as dependent variable and exchange rate (Ex), interest rate (Ir), Unemployment (U), Real Gross Domestic Product (RGDP) as independent variable. The result of the estimation shows that inflation is not only a monetary phenomenon by the statistical significance of EX and RGDP at short and long-run, U and IR at long-run. Therefore, it was thus recommended that exchange rate and inflation targeting monetary policy framework that will revalue the naira should be implemented to reduce inflation while expansionary fiscal policy that will increase RGDP is also recommended for reduction of inflation.

REVISITING THE ANOMALOUS RELATIONSHIP BETWEEN INFLATION AND REAL ESTATE INVESTMENT TRUST RETURNS IN PRESENCE OF STRUCTURAL BREAKS: EMPIRICAL EVIDENCE FROM THE USA AND THE UK

In this paper we have re-investigated the frequently observed anomalous negative relationship between inflation and REIT returns for two most important economies viz., the USA and the UK by addressing two aspects of misspecification: inappropriate functional form and omission of relevant variable. We have found that the anomalous relationship between REIT and inflation appear to proxy for the significant effect of relative price variability on REIT returns in both the countries. Further, it is evidenced that the effect of relative price variability on real estate investment trust (REIT) returns is not stable over time in case of the USA while in the UK there is no structural change in the relationship.Keywords: REITs; Relative price variability; Inflation; Structural breaks.JEL Classifications: E31; G12; R3.DOI: https://doi.org/10.32479/ijefi.9013

SEARCHING FOR THE OPTIMAL LEVEL: INFLATION AND PRICE VARIABILITY IN TURKEY

This paper explores the relationship between inflation and relative price variability (RPV) in Turkey for the period 2004–2017 to shed further light on the issue with relatively recent data. For this purpose, we use monthly price data for 12 main item groups and 414 specific items thereof. Analyses show that RPV for the period of interest exhibits large fluctuations, being particularly salient in the categories of communications and food. Regarding the underlying functional form, semi-parametric estimation results indicate a U-shaped relationship between inflation and RPV, where the latter reaches its minimum at an inflation level close to 8%.

Sectoral variability and the foundations of optimal inflation rate

ABSTRACTThe recent monetary search models argue that the real effects of inflation on economic activity can be gauged through relative price variability (RPV). Our study uses a large panel data of 32 developed and emerging European economies to test the relationship between inflation and RPV. We use a panel threshold model to explore the regime-specific effects of inflation on RPV. Our results confirm a non-linear profile of the relationship between inflation and RPV. Consistent with the monetary search models, our results show that the effects of inflation on the RPV are more significant in its low (below 0.792% per annum) and high (beyond 2.064% per annum) regimes. Finally, we also report a strong moderating role of central bank independence (CBI) in the inflation–RPV relationship.

Inflation and relative price variability: new evidence from survey-based measures of inflation expectations in Australia

For the first time in the literature, this paper uses survey-based measures of inflation expectations to examine the relationship between inflation and relative price variability (RPV). Using quarterly consumer price index data for 74 consumption categories in Australia from 1989 to 2014, we estimate the basic linear and piecewise liner models to investigate the impacts of expected and unexpected inflation on RPV. Both headline and core inflation measures are used. The results show a statistically significant and robust positive impact of unexpected inflation on RPV. There is little evidence of asymmetry between the effects of positive and negative inflation shocks. This paper further investigates the specific functional form of the inflation-RPV relationship. While the results suggest a J-shaped nonlinear relationship between inflation and unexpected inflation, there is little evidence of any specific functional form for an expected inflation-RPV relationship. Finally, two structural breaks in the inflation-RPV relationship are identified: 2003Q2 and 2007Q2 for headline inflation and 2000Q2 and 2006Q2 for core inflation. The first two regimes are characterized by a positive and convex association between RPV and unexpected inflation, which disappears in the third regime. The results are qualitatively similar when the model is re-estimated using standard forecast-based inflation expectation measures, suggesting that the traditional approach captures the inflation-RPV relationship reasonably well, at least for Australia.

Price convergence, reversal speed and purchasing power parity: Stylized facts for Brazilian cities

Abstract This paper analyzes the price dynamics of Brazilian cities between 1995 and 2012 to identify stylized facts about price convergence, the reversal speed of deviations between relative prices and purchasing power parity (PPP). There is evidence of a strong reduction in the absolute dispersion of prices of Brazilian cities and in the variability of relative prices. The estimated half-life of deviations from PPP reversal proved to be lower than those found for cross country data and American cities. The results also indicate that the stationarity of the real exchange rate among the cities is rejected for all the series that presented a reversal speed to deviations from the PPP smaller than the average for each numerarie considered. It is argued that the evidence of price convergence associated with a process of slow reversal speed of deviations from the PPP have influence on the non-rejection of a unit root in the real exchange rate series for some cities, however, this fact does not constitute in itself evidence against the validity of the PPP.

Modelling a complex world: improving macro-models

Macro models have come under criticism for their ability to understand or predict major economic events such as the global financial crisis and its aftermath. Some of that criticism is warranted; but, in our view, much is not. This paper contributes to the debate over the adequacy of benchmark DSGE models by showing how three extensions, which are features that have characterized the global economy since the early 2000s, are necessary to improve our understanding of global shocks and policy insights. The three extensions are to acknowledge and model the entire global economy and the linkage through trade and capital flows; to allow for a wider range of relative price variability by moving to multiple sector models rather than a single good model; and to allow for changes in risk perceptions which propagate through financial markets and adjustments in the real economy. These extensions add some complexity to large scale macromodels, but without them policy models can oversimplify things, allowing misinterpretations of shocks and therefore costly policy mistakes to occur. Using oversimplified models to explain a complex world makes it more likely there will be “puzzles”. The usefulness of these extensions is demonstrated in two ways; first, by briefly revisiting some historical shocks to show how outcomes can be interpreted that make sense within a more complex DSGE framework; then, by making a contemporary assessment of the implications from the proposed large fiscal stimulus and the bans on immigration by the Trump administration which have both sectoral and macroeconomic implications that interact.

Modelling a Complex World: Improving Macro-Models

Macro models have come under criticism for their ability to understand or predict major economic events such as the global financial crisis and its aftermath. Some of that criticism is warranted; but, in our view, much is not. This paper contributes to the debate over the adequacy of benchmark DSGE models by showing how three extensions, which are features that have characterized the global economy since the early 2000s, are necessary to improve our understanding of global shocks and policy insights. The three extensions are to acknowledge and model the entire global economy and the linkage through trade and capital flows; to allow for a wider range of relative price variability by moving to multiple sector models rather than a single good model; and to allow for changes in risk perceptions which propagate through financial markets and adjustments in the real economy. These extensions add some complexity to large scale macromodels, but without them policy models can oversimplify things, allowing misinterpretations of shocks and therefore costly policy mistakes to occur. Using oversimplified models to explain a complex world makes it more likely there will be “puzzles”. The usefulness of these extensions is demonstrated in two ways; first, by briefly revisiting some historical shocks to show how outcomes can be interpreted that make sense within a more complex DSGE framework; then, by making a contemporary assessment of the implications from the proposed large fiscal stimulus and the bans on immigration by the Trump administration which have both sectoral and macroeconomic implications that interact.

The Effects of Inflation on Relative Price Variability: The Importance of Price Regimes

We use Chilean monthly data on the prices of 23 food products, between November 1970 and December 1976, to study: (i) the pass-through from the aggregate price to product-specific prices and, (ii) the effects of aggregate inflation on relative price variability. This is done in a context of price liberalization, which serves as a natural experiment to study whether these relationships change when there is price fixing. On the one hand, our results suggest that all prices increase after liberalization, but that this increase is larger for prices that were fixed. Moreover, the effect of the aggregate price on product-specific prices is, on average, positive an almost one-to-one, irrespective of the specification used. On the other hand, we find an average positive impact of inflation on relative price variability. Nonetheless, the latter result crucially depends on prices that were not liberalized: following the liberalization episode, inflation positively affected the relative price variability of fixed prices, while it had no effect on the relative price variability of liberalized prices. This suggests that the channel through which inflation affects relative price variability is its effects on products with fixed prices rather than prices determined by market forces.

Standard errors for the Laspeyres index number with autocorrelated error models

ABSTRACTThis paper deals with the stochastic approach to Laspeyres price index number with the assumption of serial correlation of orders 1 and 2. The first round of estimation provides the estimates of Laspeyres index numbers in the presence of serial correlation assuming that variance is independent of time. In the second round of estimation, we use the weighted least square approach to derive the standard errors of Laspeyres index number assuming variance is dependent on time. These standard errors are linked to the variability of relative prices and are simple to evaluate. It shows that the larger index numbers are expected to estimate with less degree of precision. The results are illustrated with price data of Pakistan.

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, inflation uncertainty and relative price variability in Bangladesh

Developing countries are often busy with the rate of inflation and its effects on the economy. Although the monetary policy of developing countries is concerned with business fluctuations and its effects on stability, recent studies are giving importance on the relationship between inflation and relative price variability (RPV). In recent macroeconomic theory, RPV generates the fundamental distortions of inflation, which disrupts the informational content of nominal price. It has long been popularly believed that the relationship between RPV and inflation is positive and stable. Using disaggregated monthly CPI data for Bangladesh from 2002:7 to 2013:6, this study tries to tackle the following problems: (1) whether the relationship is linear? (2) whether the relationship is sensitive to the models of inflation forecasting? (3) whether the model is stable? This study finds that the relationship is not linear, which contrasts with the earlier works on RPV-inflation relationship. Our semiparametric estimations show that the relationship is U-shaped. The estimation of the parametric quadratic function shows that the model of inflation forecasting is sensitive to this relationship which makes that it is the unexpected inflation which matters for RPV. Although the equation is specified, but it is not stable over time. The rolling regression analysis and breakpoint test show that there is a breakpoint during the sample period. The instability also comes from the food inflationary shock and poor macroeconomic policy management. This stability of the relationship is important for determining the threshold level of inflation, which is crucial to minimize RPV.

IMPACT OF AGRICULTURAL POLICY ON RELATIVE PRICE VARIABILITY OF FOOD CROPS AND INFLATION IN NIGERIA

<p>Prices of food crops in Nigeria tend to exhibit similar trend with inflation. The study therefore established quantitatively relationships among agricultural policy, relative price variability (RPV) of food crops and inflation in Nigeria. Data for the study includes annual producer prices (nominal) and output of food crops and annual inflation rate obtained from the publications of the Central Bank of Nigeria, Nigerian Bureau of Statistics, Food and Agricultural Organisation and Nigerian Institute of Social and Economic Research covering the period of 1970-2009. Analytical tools used were RPV index and Error Correction Method (ECM). The results showed that the variables are stationary at their levels. As inflation increases, RPV of food crops also increases both in short run (0.0002) and the long run (0.0310). Civilian Post-Structural Adjustment Period Policies (CPSAP) caused a significant reduction in inflation and consequently reduced the RPV of food crops in the long run. There is a need for policies that will buffer the food crop sub-sector from the effects of inflation. Policies that reduce the rate of inflation and minimise RPV among food crops are needed. Effective management of inefficiencies and misallocation of resources in the sub-sector should be explored.</p>