Transmission Of Inflation Research Articles

Major energy producers, exporters and importers―transition to renewables sources and diversification of suppliers in 2000-2019

The article consists of two main parts: theoretical and empirical. The first presents the opinions of authors representing International Political Economy who question the assumption that the transformation of the energy sector can be based only on the market mechanism. They justify that the most favourable conditions for carrying out structural changes going in the direction of gradual reduction of fossil fuels and increasing the share of alternative sources in energy production exist in democratic countries where the state performs social-economic functions and engages in the promotion of clean technologies in the energy sector. The empirical analysis assesses the advancement of structural changes in energy production globally and in the group of the 15 largest producers by the share of raw materials used in 2000-2019. The study also includes changes in the subject and object structure of exports and imports of energy raw materials. The analysis shows that diversification of energy sources was progressing, but mainly concerned the share of coal, oil and gas in its production. A negative phenomenon was the increase in the share of coal in energy production in the global economy from 22.8 to 27.1%. Contributing to this were: China, Australia, Indonesia, India and Russia. In the EU, the results of the transformation of the energy sector, compared to other countries, were exceptionally good. The share of renewable raw materials in energy production increased from 11.0 to 33.4%. Referring to the impact of the energy sector transformation and changes in energy markets on the global balance of economic power, the authors concluded that fossil raw material resources, which are concentrated in a small group of countries, give them great opportunities to directly influence the formation of their world prices, the situation in other markets and the overall situation in the global economy through the transmission of inflation, exchange rate fluctuations and imbalances in the balance of payments. In 2000-2019, Russia strengthened its dominance in global energy commodity markets by increasing its share in world exports from 10 to 12.7%, against 9.1% of the USA, 8.8% of the EU-28, 7.5% of Saudi Arabia and 6.05% of Australia. Russia's important assets as an energy power are its well-developed oil and gas transport infrastructure covering Europe and Asia, the strong monopolistic position of Gazprom and other companies on the fossil fuel markets and the EU's high dependence on imports of energy resources from Russia. The new geopolitical situation has a major impact on changing the priorities of the energy policy of the EU and the US, as well as of the countries dependent on raw material imports from Russia. The process of transformation of the energy sector may be dynamised, which will weaken Russia's position.

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.

Transmission of Inflation and Exchange Rate Effects: The Markov Switching Vector Autoregressive Methodology

The aim of this study is to delve into the intricate the mechanism through which alterations in currency exchange rates give rise to shifts in inflation rates, while taking into careful consideration the country’s economic cycle. In order to accomplish this objective, we used a dataset that spanned from 1 January 1999 to 1 July 2023, focusing our analytical lens on three specific geographic areas, namely the Eurozone, the United Kingdom, and Canada. In our pursuit of understanding this complex relationship, we employed the Markov Switching Vector Autoregressive model. Our research outcomes can be succinctly encapsulated as follows: in the initial stages, particularly during phases characterized by robust economic growth, the transmission of exchange rate effects onto inflation levels appeared to exhibit a partial impact across all geographic areas under examination. However, during periods marked by economic downturns, both the United Kingdom and Canada displayed a distinctly more comprehensive transmission of these effects. Moreover, the prevailing projections for the forthcoming time horizon, across all the countries encompassed by our study, strongly indicate the onset of an expansionary phase that is projected to extend over a span of 25 months. Lastly, concerning the implications of unexpected disturbances or shocks, it is noteworthy that the response of exchange rates to inflation induced shocks was neither immediate nor as pronounced as the corresponding reaction of inflation to sudden shifts in exchange rates.

Inflation Transmission Diagnostics via a Bayesian Graph Vector Autoregressive Model with Markov Switching

Inflation Transmission Diagnostics via a Bayesian Graph Vector Autoregressive Model with Markov Switching

Dynamic connectedness of inflation around the world: A time-varying approach from G7 and E7 countries

Using advanced econometric techniques of the Time-Varying Parameters Vector Autoregression model with stochastic volatility (TVP-SV-VAR) and the Quantile Vector Autoregression (QVAR) model, this research investigates the dynamics of the Consumer Price Index (CPI) across G7 and E7 countries from January 1993 to January 2023, aiming to comprehensively analyze the international transmission of inflation. The study yields several key findings. Firstly, we ascertain that approximately 64% of inflation volatility can be attributed to international transmission. Secondly, our analysis consistently identifies Turkey and Russia as net exporters of inflation over the study period, while G7 countries and Mexico emerge as persistent net importers. Thirdly, we note a gradual increase in China's inflation connectivity with developing countries following the Asian financial crisis, coupled with a diminishing impact of Chinese inflation transmission to developed nations. Fourthly, we observe a heightened complexity in the inflation transmission network during periods marked by high Total Connectivity Index (TCI) values, compared to those with low TCI values. Lastly, our study underscores that the transmission of international inflation intensifies during periods characterized by extremely high or low international inflation rates.

Inflation Spillovers among Advanced and Emerging Economies: Evidence from the G20 Group

The influence of recent global shocks such as the COVID-19 pandemic and the Russian–Ukrainian war on the variability of major macroeconomic trends not only shows synchronized behavior across economies but also induces similar policy responses to counter these shocks. The purpose of this article is to explore the transmission of inflation among the G20 economies and evaluate its contribution to domestic inflation. To this end, we use the Diebold and Yilmaz spillover approach. The results that emerge from unconditional analysis reveal stark dissimilarities in inflation spillover patterns between advanced and emerging economies. Advanced economies are subject to higher spillover rates and thereby more exposed to global shocks compared to their emerging counterparts. Inflation in emerging countries is mainly derived from idiosyncratic shocks, while global shocks have only a modest influence on domestic inflation. In addition, bilateral spillovers among the G20 members show that the average pairwise directional spillovers between emerging economies are lower compared to advanced economies. The results pertaining to the spillover dynamics, on the other hand, show that total inflation spillover has a clear upward trend, indicating that the overall interconnectedness between G20 countries is increasing over time. Moreover, the estimates of spillover dynamics show a growing influence of received inflation spillovers from external shocks in both advanced and emerging economies. Policymakers in advanced economies are expected to respond to global shocks to mitigate the influence of spillovers, which is essential for economies that display high spillovers and turn out to be net receivers of shocks. However, public agencies in emerging economies should concentrate more on internal shocks to control inflation while not ignoring global shocks.

中国输入型通货膨胀的传导机制的实证分析 : 基于VAR模型的Granger检验

中国输入型通货膨胀的传导机制的实证分析 : 基于VAR模型的Granger检验

한국의 인플레이션 결정요인에 대한 실증 분석

Purpose - This study examines the determinants of inflation in Korea, which includes the validity for the evidence of agflation. Design/Methodology/Approach - This study used monthly data from January 2003 to September 2021, which included the consumer price index (CPI) equation, food price index equation, and CPI inflation transmission equation. The econometric procedures were utilized by ordinary least square (OLS), instrumental variable (IV), three stage least square (3SLS) for time series data, and adopted by vector autoregression (VAR), and vector error correction model (VECM) for multivariate analysis Findings - First, the increase in real gross national income (GNI), oil prices, and food related CPI contributed to the increase in overall CPI. Second, the increase in meat and dairy-related CPI denoted the increase in the agri-food related CPI. Finally, the entire inflation had bi-directional Granger causality with agri-food and oil related inflation, and non-agri-food and non-oil related inflation. Also, the impact of agri-food and oil related inflation was relatively short, but it greatly influenced the entire inflation, and the impact of non-agri-food and non-oil related inflation influenced the entire inflation for a long period. Research Implications - Policy makers consider that almost all grains depend on imports, except for rice; policies related to price level management should be prepared for the impact of food prices rising, and furthermore, international cooperation and coordination should be carried out at the same time.

Chinese influences on inflation determination in Australia and the ASEAN group: A Markov-switching analysis

China's rapidly growing role in the world economy has been accompanied by rising bilateral trade with Australia and the Association of Southeast Asian Nations (ASEAN group) as well as expanded offshore renminbi (RMB) markets in the region. Using a Markov-switching analysis that allows for variation across stable and volatile domestic inflation regimes, we find evidence of significant inflation transmission from China to Australia and the five larger ASEAN economies. Chinese inflation effects are further confirmed when we incorporate money supply and commodity price effects within a Markov-switching Vector Autoregressive (MSVAR) framework. The importance of allowing for regime change over our sample period is clear and these inflation effects are shown to generally be stronger during periods when domestic inflation is more volatile. These findings on inflation pass-through from China represent a novel extension to a prior literature that has been primarily limited to real economy and trade effects.

Heterogenost inflatornih procesa u Evropskoj monetarnoj uniji

Paper analyses the extent to which inflation processes in Eurozone member countries are heterogeneous. Eurozone is composed of 19 different countries, are they similar enough to share the common currency? Significant heterogeneity of inflation processes makes the management of common monetary policy very complicated, since it poses contradicting demands, so it will not suit all members. Growing inflation has been very significant problem in the world since the beginning of 2021 and events in the first quarter of 2022 brought even higher, unprecedented rise in inflation rates. How might that influence the management of common monetary policy? Should we fear of new debt crisis in EMU? It was expected that Monetary union will support the integration of labor, product and capital markets, which will further reduce the heterogeneity of inflation processes. Literature review showed significant achievement in inflation convergence when comparing period before and after the advent of Monetary union, however problems occurred in later stages. Our analysis indicates significant departure of inflation process in majority of member countries from EMU average and among themselves. There is no statistically significant convergence of inflation rates, while there is a unit root in the series of standard deviations of inflation differentials. Coefficient of variations shows large differences in inflation rates in a single period, variability of inflation between members is very high, and variations of inflation seem insufficiently correlated. Inflation rates show significant persistence measured by autocorrelation coefficients, and there are differences among member countries showing that their inflation transmission processes differ.

Інфляція в Китаї у період економічних реформ 1980-х років: причини та результати

The article studies the development of inflationary processes in China in the period of 1979-1989, their causes and effects. In particular, based on the analysis of statistical data, it is established that inflation in China is manifested in price and non-price forms, and also has a pronounced directive nature. This means that even excessive public investment can cause inflation. Two ways of reforming the fixed price system are considered: 1) simultaneous weakening of all prices 2) gradual weakening of prices, their slow adjustment towards the market. The relationship between inflation and macroeconomic indicators, including capital investments, wages and economic growth rates, is given. The inflation transmission mechanism of excess demand in China manifests itself due to overinvestment of state-owned enterprises, which leads to budget deficits and surplus issuance of the Yuan and causes inflation. Three phases of the Chinese phenomenon of "money illusion" are considered: the illusion of strong money without inflationary expectations (1979-1984); weakening of money illusion with some inflationary expectations (1985-1986); the formation of expectations without money illusion (since 1988). The method of using inflation to regulate the distribution of income is analyzed.. With the reform, income distribution became more uneven. To some extent, this is a desirable outcome, but the intensification of the public sector reforms resulted in not just inequality but injustice. Thus, the problem to be solved immediately is whether China can use inflation to regulate income distribution. Statistics show that per capita consumption in China in the late 1980s was only 640 Yuan. The proposed reduction in inflationary pressures views monetary policy as regulating the money supply and curbing inflation. Setting an inflation target is considered an effective tool to achieve the planned inflation rates.

Inflation Diffusion Through Production Networks

This paper investigates the relationship between input-output networks and the transmission of inflation shocks across manufacturing industries in South Korea, an economy that is open to external shocks. Using the dynamic inflation connectedness measures for 1971-2020, we show that production networks are responsible for the amplification of inflation shocks during times of supply shocks, such as the oil price shocks of 1973-74 and 1979-80. On the contrary, production networks are weakly associated with inflation transmission across sectors if the shocks originate from the demand-side such as the East Asian Financial Crisis of 1997.

Chinese Influences on Inflation Determination in Australia and the ASEAN group: A Markov-Switching Analysis

Notwithstanding China’s rapidly growing role in the world economy, there is surprisingly little analysis of the extent to which inflation dynamics in China are passed through to other regional economies. We find evidence of significant inflation transmission from China to Australia and the five larger ASEAN economies under our Markov-switching analysis that allows for variation across high and low volatility states. Chinese inflation effects are further confirmed when we incorporate money supply and commodity price effects with a Markov-Switching Vector Autoregressive (VAR) framework.

Imperfectly Competitive Markets, Trade Unions and Inflation: Do Imperfectly Competitive Markets Transmit More Inflation Than Perfectly Competitive Ones? A Theoretical Appraisal

In this paper we study the theoretical plausibility of the conjecture that inflation arises because imperfectly competitive markets (ICM in the sequel) translate cost pushes in large price increases. We define two different measures of inflation transmission. We compared these measures in several models of ICM and in perfectly competitive markets (PCM in the sequel). In each case we find a necessary and sufficient condition for an ICM to transmit more inflation - according to the two measures - than that transmitted by a PCM.

Inflation Linkages Within The Eurozone: Core vs. Periphery

AbstractWe examine the process of inflation transmission among GIIPS countries (Greece, Ireland, Italy, Portugal and Spain) and Germany. Our findings suggest that inflation spillovers have increased since 2001. We also find that peripheral economies are (dis‐)inflation transmitters to the core. This finding is significant for policy formulation, given the very low inflation environment that currently exists in the Euro area and the macroeconomic implications that arise from this.

Monetary Policy Transmission : Does Maintain the Price and Poverty Stability is Effective?

This study analyzes the effectiveness of monetary policy transmission of emerging market countries, both short and long-term in maintaining economic stability and reducing poverty. The main problem in this paper is that monetary transmission is incapable of controlling the economy and reducing poverty. There are five countries selected such as India, Brazil, China, Russia, and Indonesia. Long-term prediction analysis using Vector Auto Regression (VAR) model is performed to predict five emerging market countries using Regression Panel. It results suggest that monetary policy transmission affecting the number of poor people should be controlled in three stages. In the short-term, the transmission of export variables and inflation controls the number of poor people. In the medium-term, the control of the number of poor people uses variables of inflation and exports while in the long-term uses exports and Gross Domestic Product (GDP). Overall, all economic variables of emerging market countries are greatly influenced by the fluctuations of each country's exports, then by food price stability as measured by food price inflation. The result of regression panel analysis is known that the factor that most influence the poor people in emerging market country is GDP. Exports also affect poor people such as Indonesia, China, and Russia. Inflation also causes poor people like India and Brazil. The countries that have the most impact on economic fluctuations on the number of poor people are India, Indonesia, China, Brazil, and Russia.

A MODEL OF INFLATION TRANSMISSION IN AN EXCHANGE RATE TARGET ZONE

I incorporate an exchange rate target zone with intramarginal interventions in a small open economy model. Using the method of undetermined coefficients, I solve for the price level and the nominal exchange rate to determine how price shocks from the large economy affect the small open economy. The results show that the behaviour of inflation transmission within the band differs from the behavior of inflation transmission at the edge of the band of the target zone. Foreign shocks can affect local prices in both cases but the central bank can respond through market interventions within the band while it cannot do so at the edge. Near the edge of the band, a central bank has to intervene to stop the exchange rate from breaching the band. My model predicts that if the interventions are robust, then the exchange rate is mean reverting and an exchange rate target zone can insulate an economy from foreign price shocks. Based on the model, central bank interventions contribute to long-run price stability in a target zone regime. Finally, I empirically test the model using unit root and cointegration tests, and present some policy implications.

Imperfectly competitive markets, trade unions and inflation: Do imperfectly competitive markets transmit more inflation than perfectly competitive ones? A theoretical appraisal

In this paper we study the theoretical plausibility of the conjecture that inflation arises because imperfectly competitive markets (ICM in the sequel) translate cost pushes in large price increases. We define two different measures of inflation transmission. We compared these measures in several models of ICM and in perfectly competitive markets (PCM in the sequel). In each case we find a necessary and sufficient condition for an ICM to transmit more inflation -according to the two measures-than that transmitted by a PCM.

Regional Food Price Inflation Transmission

Understanding to what extent and speed agricultural commodity price changes on international markets are transmitted to consumers is key in assessing the vulnerability of households to price shocks. The importance of these transmission indicators is compounded, in developing countries, by the fact that consumers tend to spend a higher proportion of their income on food items. Regional estimates of food inflation transmission can also be used to predict consumer-level impacts of international price shocks, contributing to improve the information basis on which to base policy mitigation actions and to focus on the areas likely to suffer the most. The aim of this paper is to provide estimates of the transmission of price changes from international commodity markets to consumers in different regions of the world, using monthly data from FAO's Food Price Indices and Regional Food Consumer Price Indices. This econometric analysis, which uses impulse response functions from error-correction models, is useful in establishing typologies of regions with respect to the extent and speed of price transmission processes.

The problem of inflation and dependence on imports in an open economy (on the example of the economy of the republic of Tajikistan)

The main objective of the study is to identify the peculiarities of inflation trends in the context of large import dependence, as well as finding the ways to solve the problems of inflation and import dependence. In this connection, the article discusses in detail such issues as the specifics of inflation processes in the context of globalization, the interrelation between inflation and the foreign trade factor, the interrelation between inflation and the exchange rate. The peculiarities of inflation trends, as well as the interrelation between inflation and import dependence, are examined on the example of the economy of the Republic of Tajikistan. The theoretical basis of the study was the work of foreign, in particular Russian and native scientists on inflation issues in an open economy, inflationary tendencies in the context of globalization, the interrelation between inflation and integration processes, as well as the problems of import dependence. The statistical data of the Agency on Statistics under the President of the Republic of Tajikistan - www. stat.tj, the data of the website of the National Bank of the Republic of Tajikistan – www.nbt.tj were used as the information base for the years 2003-2016. Results: The positive and negative influence of the foreign trade factor on the level of inflation in the Republic of Tajikistan has been revealed. The positive effect of the foreign trade factor is the following: in conditions of a significant increase in the incomes of the population and a lack of domestic production potential, the import helps to reduce the large inflationary pressure that arises from the growth of domestic aggregate demand. On the other hand, the import becomes a factor that covers the domestic commodity deficit because the domestic production of the republic still cannot fully meet the aggregate demand for consumer goods. The negative impact can be attributed to the following: in the context of large import dependence, the increase in the prices of imported goods leads to the transmission of inflation, and there is also a significant impact of the exchange rate of the national currency (somoni) on the value of imported goods and, accordingly, on inflation. The negative consequences can also be attributed to the fact that the high import competitiveness creates barriers for the development of domestic production and acceleration of the import substitution process. Low import-substituting potential significantly reduces the positive effect of the devaluation of the national currency. To effectively use the policy of depreciation of the national currency in order to stimulate the development of domestic production, it is necessary to create conditions for a mobile reaction of domestic production to the devaluation policy. For this reason, there is a need to find the ways to reduce the growing import dependence of the republic. One way to solve this problem can be the timely use of a significant increase in the incomes of the population as a stimulating demand for accelerating the development of domestic production. The results of the research show that today the presence of large import dependence makes the economy of the Republic of Tajikistan vulnerable to external factors and contributes to the emergence of inflationary trends. Large import dependence increases the risk of transmission of international inflation, creates barriers to the development of domestic production, and reduces the effectiveness of the application of the monetary policy in order to accelerate the importsubstitution process.