Unexpected Inflation Research Articles

Investor Sentiment, Unexpected Inflation, and Bitcoin Basis Risk

ABSTRACTThe introduction of regulated CME futures contracts on Bitcoin in 2017 raised an expectation that cryptocurrencies would become part of mainstream financial markets. This also heightened links between traditional markets and Bitcoin, implying that the cryptocurrency would be subject to systematic spillovers. This paper uses high‐frequency data to examine whether Bitcoin basis risk is linked to investor sentiment from established financial markets. Our findings indicate that extreme investor sentiment, as reflected by the tail risk in various volatility indices, including the VIX, consistently correlates with a negative Bitcoin basis, where Bitcoin futures prices are lower than spot prices. Fluctuations significantly influence this relationship in the trading volume of Bitcoin futures and are more pronounced during periods of substantial unexpected inflation and deflation. These results underline the complex dynamics between market sentiment and cryptocurrency pricing, offering insights with substantial implications for investors and policymakers.

Comparative Analysis of Gold, Art, and Wheat as Inflation Hedges

This study confirms gold’s role as a reliable inflation hedge while introducing new insights into lesser-explored assets like art and wheat. Using advanced methodologies such as the ARDL framework and LSTM deep learning, it conducts a detailed analysis of inflation-hedging dynamics, exploring non-linear relationships and unexpected inflation impacts across various asset classes. The findings reveal complex dynamics. Gold demonstrates strong long-term inflation hedging potential. The negative coefficient for the US dollar index suggests that gold acts as a hedge against currency depreciation. Furthermore, a positive relationship between gold returns and inflation during high inflation periods highlights its effectiveness in protecting purchasing power. Art presents a more intricate picture. Long-term analysis suggests a weak mean-reverting tendency, but a negative relationship with inflation, potentially linked to economic downturns. Interestingly, unexpected inflation positively correlates with art returns in the long run, hinting at its potential inflation-hedging abilities. No statistically significant connection between wheat prices and overall inflation was observed; the short-run analysis reveals a dynamic interplay between inflation, real GDP growth, and wheat prices at different time points.

MONETARY POLICY AND WEALTH INEQUALITY: EVIDENCE FROM CHINA

Given the scarce empirical evidence on the distributional consequence of monetary policy, this paper draws on detailed data at microlevel to investigate the impact of China’s monetary policy on households’ wealth and wealth distribution using information from the China Family Panel Studies (CFPS) during 2012–2018. Our results confirm the following: (1) Household wealth is affected more by real interest rate adjustments than unexpected inflation and there are heterogeneities across the wealth level; (2) The impacts of monetary policy loosening and tightening cycles on household wealth are not neutral. During 2012–2018, while monetary easing had an equalizing effect, the unexpected inflation channel had a dis-equalizing effect; (3) Financial development amplifies the wealth effect of monetary policy adjustments. Our findings have important implications on the conduct of central bank policies.

Investor Sentiment, Unexpected Inflation and Bitcoin Basis Risk

Investor Sentiment, Unexpected Inflation and Bitcoin Basis Risk

Forecasting the Economic Crisis of Sri Lanka: Application of Machine Learning Algorithms for Time Series Data

The economic crisis in Sri Lanka began in 2019 and reached a crisis point in 2022 when protesters stormed the presidential palace in Colombo. Acute food, fuel, and other item shortages, soaring inflation, prolonged power outages, and a collapsing economy with few job opportunities all contribute to the populace's unrest. Sri Lanka still faces severe economic difficulties, and no one can say when they will be resolved. This country has seen the most prominent financial collapse since its independence in 1948. Unexpected inflation levels, a close to complete exhaustion of foreign currency reserves, a shortage of medical aid, and a rising price of essential commodities are the results. Numerous compounding reasons, including tax cuts, printing money, a countrywide regulation to move to natural or biological agriculture, the 2019 Sri Lanka Easter bombings, and the repercussions of the COVID-19 epidemic, have been cited as the root cause of the disaster. As early as 2022, these protests in Sri Lanka might be traced back to the country's economic woes. The primary driver of the current financial crisis in Sri Lanka is inflation. This article will look into Sri Lanka's inflation rates beginning in 2021. The inflation Rate of Sri Lanka has been forecasted for the next 6 months (through September 2023) using time series data. We used numerous Time Series Forecasting Algorithms for this multi-step ahead forecast. The results generated by these time series forecasters were in accordion with each other. Thus, we put forward the normalized results from each of these forecasting paradigms to get a better prediction on the inflation Rates, that Sri Lanka is supposed to face shortly (6 months), keeping in consideration of the current scenario being unaltered. The authors hope the Sri Lankan Administration will use the paper's predictions to take charge, which could lead to positive changes.

Unexpected inflation and public pensions: the case of Hungary

Unexpected inflation and public pensions: the case of Hungary

Inflation, Salience, and Analyst Forecast

In this article, I examine whether a behavioral salience bias can explain analysts’ underreaction to inflation. Using a sample of U.S. analysts, I found that analysts incorporate both expected and unexpected inflation in their earnings forecasts when forecasts are more salient. I further found that efficient earnings forecast is a dominant channel that affects the inclusion of inflation in analysts’ earnings forecasts.

O regresso à anormalidade: da guerra na Ucrânia ao surto inflacionista

The invasion of Ukraine was a critical juncture on the International Economy with an economic crisis characterised by sudden and unexpected inflation. Before the invasion, economic agents and political actors (at the national, supranational, and international levels) were converted to low and long-term stable inflation. A perceived line of stability was abruptly eroded. Section 1 approaches the immediate causes of soaring inflation. Section 2 addresses the implications of a (then) unexpected inflation, considering the timing of macroeconomic forecasts for 2022. Section 3 explores the microeconomic effects of high and persistent inflation. Section 4 brings the normative dimension into the analysis, going back to the unfinished controversy between the two leading schools of economic thought (Keynesian and monetarist) on the macroeconomic priorities that influence the design of economic policy.

주택은 인플레이션을 헷지 할 수 있는가?

This paper examines the inflation hedging capacity of Korea’s housing return from January 1987 to December 2022. The exponential generalized autoregressive conditiuonal heteroskedasticity(EGARCH) model and a dynamic ordinary least squares (DOLS) regression were employed to study the hedging capacity of Korea’s housing return against expected and unexpected inflation over the short run and long run. The results that could be obtained through this paper is as follows. First, The empirical results show a hedge effect on expected inflation only in housing return excluding gold over the short term, but not in unexpected inflation. Second, Over the long run, housing and gold returns provide a positive inflation hedge against expected inflation only. Third, it is found that the price volatility of housing and gold have both a positive asymmetric effect on news shocks. Over the long run, an increase in wages is found to increase housing prices by promoting housing demand, While no similar evidence is found in money supply.Therefore, there is a need to implement a stable wage policy to stabilize the housing market.

Inflation hedging effectiveness of farmland and timberland assets in the United States

We examine the effectiveness of private- and public-equity farmland and timberland assets in hedging actual, expected, and unexpected inflation by using the capital asset pricing model under inflation. Rolling regression is used to assess the time-varying ability of hedging inflation. Results show that private-equity farmland can hedge all inflation types with a 15-year investment horizon, whereas private- and public-equity timberland can hedge expected and unexpected inflation with 15- and 30-year investment horizons. Public-equity farmland is found to be an ineffective inflation hedge in the whole sample period (2013Q1-2021Q4). Rolling regression reveals that the financial crisis of 2008 is the cutoff period after which public-equity farmland and timberland assets become more effective inflation hedges and the ability gets stronger as the investment horizon goes beyond 10 years. Overall, results suggest that the inflation hedging effectiveness depends on the investment horizon and the state of the economy, and differs across farmland and timberland assets.

Housing in the greater Paris area as an inflation hedge?

PurposeOver a long period, even low inflation has an impact on portfolio value and households’ purchasing power. In such a context, inflation hedging should remain an important issue for investors. In particular, long-term investors, who are concerned with the protection of their wealth, seek to hold effective hedging assets. This study aims to demonstrate that residential assets in “Grand Paris” are a hedge against inflation and particularly against its unexpected component.Design/methodology/approachIn this study, the physical residential markets in 127 communes in Paris and the Parisian first-ring suburbs are considered as potential asset classes. We simplified the analysis by clustering the 127 communes into five homogenous groups using ascending hierarchical classification (AHC). Then, we test the hedging ability of these groups within a mixed asset portfolios using both correlation and regression analysis.FindingsThis paper presents an analysis of the “Grand Paris” housing market and its inflation hedging ability with comparison to other financial asset classes. Results show that the five housing groups act as a highly positive hedge against unexpected inflation. Furthermore, cash and bonds seem to provide, respectively, a partial and an over hedge against unexpected inflation. Stocks act as a perverse hedge against unexpected inflation and provide no significant hedge against expected inflation. Also, indirect listed real estate demonstrates little correlation with inflation, which makes us reject its hedging ability contrary to physical residential real estate.Research limitations/implicationsThe inflation topic: although several researches exist that question the hedging property of real estate, very few concentrate on physical residential assets and to the best of the authors’ knowledge, this study is the only one that targets the “Grand Paris” area. Residential assets of the “Grand Paris” communes are confirmed to be a hedge against inflation and particularly against its unexpected component thanks to its capital appreciation rather than income one. Also, we show that the listed real estate in France (Sociétés d’Investissement Immobilier Cotée) does not provide the same hedging properties contrary to the US real estate investment trusts (REITs) who demonstrate this ability. Listed real estate could thus not be used interchangeably with housing to protect from inflation in the French market.Practical implicationsProtection of investors against inflation and in particular in the face of its return to France in 2022. Reassuring promoters and investors of the interest of residential investment projects in “Greater Paris” and of the potential that this holds.Social implicationsInflation takes a chunk out of the purchasing power of money and thereby erodes the real value of people’s finance. Investors and households who seek protection from inflation erosion should invest in direct housing, and in particular within areas that are experiencing an effective metropolization process.Originality/valueThe originality of the study is precisely relative to the geographical area studied. The latter has experienced favorable economic conditions for several years and offers interesting fundamentals to explore and exploit in investment strategies that prove capable of protecting against imminent inflation. The database is specific to this project and has been built through the compilation of several sources and with the support of BNP Paribas Real Estate.

Islamic Economic Position as a Breakfast to Reducing Inflation

Inflation is a monetary event that results in a decrease in currency value for certain goods. These incidents cause disruption to the function of money, distort prices, destroy output, undermine efficiency and productive investment, and cause social injustice. The method in writing this article is to use a literature study with a descriptive-analytic qualitative approach, namely research that is emphasized tracking and analyzing. Written sources and related reading material to the theme were discussed for further study and in-depth study. This research was conducted to examine Inflation and how to overcome it in Islam. Inflation is a condition where there is an increase in prices in general, and it takes place continuously. Inflation is also a state of continuous decline in the currency's value. In general, Inflation is caused by: the sizeable public Demand for an item, an increase in production costs, and the very high circulation of money in society. Meanwhile, according to Al- Maqrizi Taqyudin, in the Islamic economy, Inflation is caused by natural Inflation ( naturally ) and human error inflation (by humans). According to its nature, Inflation is divided into a creeping, medium inflation (galloping Inflation), and high Inflation (hyper). Inflation). The cause of Inflation is divided into Requests pull Inflation and Cosh push Inflation. According to the origin, Inflation is divided into Inflation originating from within the country and abroad. Meanwhile, according to public expectations, it is divided into Expected Inflation and Unexpected Inflation. in conventional economies, the way to overcome Inflation is by implementing monetary policy, fiscal policy, non - monetary/non-fiscal policies. In Islam, Inflation is overcome by printing low/minimal amounts of money, executing the Dues Idle fund strategy, and implementing fiscal policy

Unexpected Inflation, Capital Structure, and Real Risk-Adjusted Firm Performance

Unexpected Inflation, Capital Structure, and Real Risk-Adjusted Firm Performance

Hedging an Efficient Portfolio against Unexpected Inflation Risk : An Applied Research in the Iraq Stock Exchange

Hedging an Efficient Portfolio against Unexpected Inflation Risk : An Applied Research in the Iraq Stock Exchange

Fiscal Histories

The fiscal theory states that inflation adjusts so that the real value of government debt equals the present value of real primary surpluses. Monetary policy remains important. The central bank can set an interest rate target, which determines the path of expected inflation, while news about the present value of surpluses drives unexpected inflation. I use fiscal theory to interpret historical episodes, including the rise and fall of inflation in the 1970s and 1980s, the long quiet zero bound of the 2010s, and the reemergence of inflation in 2021, as well as to analyze the gold standard, currency pegs, the ends of hyperinflations, currency crashes, and the success of inflation targets. Going forward, fiscal theory warns that inflation will have to be tamed by coordinated monetary and fiscal policy.

Office Real Estate as a Hedge against Inflation and the Impact of Lease Contracts

This article analyzes the hedging potential of real estate and especially looks at the impact of lease contracts in various countries around the world on the inflation hedge capability for both expected and unexpected inflation. The dataset consists of direct real estate rent and capital value data for 59 cities/MSAs in 25 countries between 1991 and 2020 to make international comparison over a long time period possible. The results indicate that real estate is a good hedge against inflation, and especially against unexpected inflation. The inflation hedge capability of real estate is better for income than for change in capital value, as rent contracts are adjusted for inflation. Countries with graduated rent and revaluated rent contracts have the most positive relationship with inflation. The analysis of the lease length confirms that real estate is a better hedge against unexpected inflation, but increasing the lease length does not seem to have a positive influence on the hedge capability against unexpected inflation.

The quantity theory of stock prices

ABSTRACT We determine the implications of the Modern Quantity Theory of Money for the nominal pricing of equity stocks. Our analysis is compatible with the hypothesis that the ratio of the quantity of money in circulation to a comprehensive index of stock prices evolves in terms of an elastic (that is, mean reverting) random walk. Using annual U.S. data covering the period from 1871 until 2018 shows that the ‘half-life’ of the period it takes for the money to stock price ratio to converge towards its long-run mean, is around fifteen years. Our empirical analysis also shows that unexpected inflation has a disruptive impact on the output and investment decisions implemented by firms and leads to an increase in the money to stock price ratio (equivalently, the stock price index falls relative to the quantity of money in circulation). We also develop a framework for determining how economic agents can rebalance their investment portfolios in response to disequilibria in the money to stock price ratio and thereby maximise the expected discounted utility obtained from their future consumption.

Unexpected Inflation and Real Stock Returns

Unexpected Inflation and Real Stock Returns

Winners and Losers From Unexpected Inflation

Winners and Losers From Unexpected Inflation

Protecting Portfolios Against Inflation

Inflation is a perennial threat to the real value of portfolios, even though current inflation rates are low. To protect portfolios against inflation, cash, inflation-indexed bonds, equities, real estate, and commodities are the usual candidates. We examine each, plus other assets and, importantly, various kinds of liabilities, to examine their historical and prospective responses to expected and unexpected inflation. Our article is integrative, bringing together ideas and data from many different sources in one place.