General equilibrium pricing of CPI derivatives

We examine the issue of pricing forward futures and option contracts written on the Consumer Price Index (CPI), the change of which is a measure of inflation affecting the economy. Traditional approaches postulate an exogenous process for the price level and then derive CPI derivatives prices by standard arbitrage arguments. By contrast, we build the general equilibrium of a continuous time monetary economy that is affected by both real and nominal shocks. The price level and thus the inflation rate are found endogenously and solutions for the prices of CPI derivatives are obtained, which are in closed form in a specialized version of the economy.     

通胀预期与物价变化关系实证研究

本文分析了通胀预期的表现形式,重点探讨了通胀预期与物价变化的关系。研究结果显示,通胀预期对不同种类的价格影响程度是不同的,对消费品价格变化影响较小,CPI对通胀预期缺乏敏感;对企业生产品价格影响程度远大于对消费品价格的影响。     

股票价格具有货币政策指示器功能吗——来自中国1997～2006年的经验证据

本文运用VAR模型考察了以股票价格为代表的金融资产价格对我国通货膨胀的影响。实证分析表明,我国股票价格的变动对产出缺口存在一定的正向影响,但是这种影响不太稳定,说明我国股票价格通过总需求渠道对未来通货膨胀产生的影响比较微弱。同时,我国股票价格的变动能引起未来CPI和WPI的同向变化,尤其与CPI的关系非常稳定,说明股票价格在一定程度上包含了我国未来通货膨胀的信息。因此,我国股票价格可以作为一个帮助判断未来经济走势和通货膨胀变动趋势的货币政策指示器。     

Information,interest rates,and the volatility of asset prices

The volatility of an asset price is modelled as a function of the volatility of an information signal, real interest rates and inflation expectations. Volatility depends on the duration of cash flows, and the degree to which cash flows are indexed to real rates and inflation. The model is applied to determine asset betas, the volatility of the futures prices of assets and the volatility of equity prices.     

The Impact of Inflation Measures on the Real Returns and Risk of U.S. Stocks

Using different inflation measures produces economically significant differences in both the inflation record and inflation‐adjusted stock returns. We introduce a more consistent measure of the monthly Consumer Price Index (CPI) inflation rate to better measure real returns over 1913–2004, for which the official CPI exists. We also extend the series backward to 1871 on a monthly basis, an important addition to the data series. We analyze the impact of inflation on the real standard deviation of stock returns and find that, in contrast to the results for geometric mean returns, inflation adjustments have little impact on estimates of return variability.     

当前物价上涨压力较大未来压力可能降低

2010年4季度以来,CPI同比涨幅保持高位,上游物价同比涨幅有所反弹。当前,食品价格仍存在较大上涨压力,非食品价格涨幅处于历史高位,输入性通货膨胀压力不减,对上游价格及物价总水平产生较大的压力,但物价涨幅总体可控。先行指标预警分析和动态因子模型预测分析结果表明,未来物价上涨压力可能逐步降低,但需要一个较长的过程。     

Preparing for higher inflation: Portfolio solutions using U.S. equities

Investors have always been interested in reducing inflation risk in their portfolios. However, investors face different types of inflation than those measured by the Consumer Price Index (CPI). Moreover, different asset classes can be used to hedge portfolio inflation. In this paper, we show how individual equities can be used to construct equity portfolios sensitive to customized inflation targets. We illustrate portfolios for three types of inflation: US headline CPI, Forbes Cost of Living Extremely Well Index, and the US Medical Care Price Index. We also show how alternative weighting schemes, such as minimum volatility and maximum inflation beta, can be used to construct inflation‐hedged portfolios.     

Out of Bounds: Do SPF Respondents Have Anchored Inflation Expectations?

Since the Federal Open Market Committee announced a 2% inflation target in 2012, the median long-run inflation forecast of professional forecasters has been near target. We show, however, that most individual forecasters' long-run inflation expectations fluctuate substantially, with sizeable departures from target. We propose a new “bounds anchoring” indicator based on deviations of individuals' long-run forecasts from target. This indicator sheds new light on gradual changes in expectations since the 2012 announcement. We find that bounds anchoring gradually strengthened in the years following the target announcement, but that this trend has recently started to reverse.     

中国核心通货膨胀率的度量及其货币政策涵义

基于包含实际总产出、货币供给M2和CPI的向量自回归模型(VAR),将CPI分解为长期变动趋势和短期波动项。将长期趋势部分定义为核心通货膨胀率。运用1994～2009年中国季度数据进行实证检验,核心通胀率与CPI有长期均衡关系,主导CPI的长期变动趋势,是CPI的前导变量,能够为预测CPI提供有用信息,对为中央银行判断总体通货膨胀走势、制定及时有效的货币政策有所启示。     

Cojumping: Evidence from the US Treasury bond and futures markets

The basis between spot and future prices will be affected by jump behavior in each asset price, challenging intraday hedging strategies. Using formal cojumping tests this paper considers the cojumping behavior of spot and futures prices in high frequency US Treasury data. Cojumping occurs most frequently at shorter maturities and higher sampling frequencies. We find that the probability of cojumping is altered by the presence of an anticipated macroeconomic news announcement. The probability of cojumping is particularly affected by news surprises in non-farm payrolls, CPI, GDP and retail sales. However, the two cojumping tests are also more likely to provide contradictory results in the presence of surprises in non-farm payrolls. On these occasions the market does not clearly signal its short term pricing behavior.     

Reconsidering the Relationship between Inflation and Relative Price Variability

It has long been popularly believed that the relationship between inflation and relative price variability (RPV) is positive and stable. Using disaggregated CPI data for the United States and Japan, however, this study finds that the relationship is neither linear nor stable over time. The overall relationship is approximately U‐shaped around a nonzero threshold inflation rate. RPV therefore changes not with the inflation rate per se, but with the deviation of inflation from the threshold inflation rate. More importantly, the relationship is by no means stable over time but instead varies significantly in a way that coincides with regime changes of inflation or monetary policy. The relationship was positive during the period of high inflation of the 1970s and the early 1980s, as has been documented by a number of previous studies, whereas it takes a U‐shape profile during the Great Moderation. The results are robust to the use of core inflation, which excludes the traditionally volatile prices of food and energy. This paper then presents a modified version of the Calvo‐type sticky price model to describe the observed empirical regularities. Simulation experiments show that the modified Calvo model fits the data well, and that the underlying relationship hinges upon the degree of price rigidity, which is systematically related to inflation regime. For countries and periods with low inflation rates, the relationship takes a U‐shape as price adjustment is more sticky. In a high‐inflation environment, when price setting becomes more flexible, the U‐shaped profile vanishes.     

How important is the financial sector to price indices in an inflation targeting regime? An empirical analysis of the UK and the US

This paper investigates whether there are benefits in terms of higher economic stability from incorporating stock prices into the price index targeted by the central banks. It also looks into the question of whether central banks should use stock prices as a component of the output stability index and how the index can be constructed. An optimization technique is employed to estimate weights for the various sectoral prices. The obtained weights, which depend on sectoral parameters, differ from those used in the construction of the consumer price index, CPI. Using data from the UK and the US, our analysis demonstrates that in comparison to the CPI, our measure of inflation leads to a higher output stability. Thus, in an inflation-targeting monetary policy environment, it is important to adopt a broader inflation benchmark than the CPI for the general macroeconomic stability.     

人民币汇率变动对我国通货膨胀的影响：汇率传递视角的研究

在开放经济条件下,汇率变动对一国通货膨胀水平的决定具有重要作用。本文利用自回归分布滞后(ARDL)模型研究了人民币汇率变动对以消费者价格指数(CPI)衡量的国内通货膨胀的传递效应。研究结果表明,人民币汇率变动对以CPI衡量的通货膨胀水平的传递是不完全的且存在明显的时滞,长期和短期汇率传递效应都很低;汇率变动对我国CPI的传递效应受食品价格冲击的影响非常大。本文的研究结论对于我国的汇率制度改革和货币政策实施等具有重要的启示意义。     

What measure of inflation should a developing country central bank target?

In closed or open economy models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We analyze this result in the context of developing economies, where a large proportion of households are credit constrained and the share of food expenditures in total consumption expenditures is high. We develop an open economy model with incomplete financial markets to show that headline inflation targeting improves welfare outcomes. We also compute the optimal price index, which includes a positive weight on food prices but, unlike headline inflation, assigns zero weight to import prices.     

Stationarity and Cointegration in Systems with Real Estate and Financial Assets

This study examines the properties of wealth indices for investments in several asset classes (real estate, stocks, bonds, and Treasury bills), for several types of real estate (office, retail, research and development office, and warehouse), and by region (East, Midwest, South, and West). The series representing the value of investments in real estate and financial assets are not stationary; therefore, ordinary statistical procedures cannot be applied. Since many of the properties that are included in the real estate series have outside appraisals on an annual basis, especially in the fourth quarter, the real estate series may show seasonal influences. Hence, the appropriate test for cointegration is the Johansen's test, which is formulated in such a way as to allow for deterministic seasonality by the inclusion of seasonal dummy variables. The finding of cointegration implies that there is a long-run relationship between the series in the cointegrated system. When the CPI (or a proxy for inflation) is included in the three systems, the number of common factors increase to two, implying that inflation plays an important role in creating a linkage between these time series. These findings also have implications for developing portfolios comprising financial assets and real estate. The findings also have implications for developing a model to forecast real estate prices.     

资产价格波动的通货膨胀预期效应——基于房地产市场的实证分析

通过对房地产市场的实证研究,证实了资产市场资产价格的变化会影响到人们对未来经济形势的判断,进而影响到公众对未来消费品市场价格的判断,根据“预期自我实现”的原理,会对实际的通货膨胀或者通货紧缩产生影响。研究表明,房地产市场价格走势对通货膨胀预期的影响,要大于房地产市场资金变化对通胀预期的影响,所以监管层要管理好通货膨胀和通货膨胀预期,就要加强对资产市场尤其是房地产市场的监控,防止房价的大起大落。     

News announcements and price discovery in foreign exchange spot and futures markets

This paper studies competition in price discovery between spot and futures rates for the EUR–USD and JPY–USD markets around scheduled macroeconomic announcements. Using both the information shares approach and the common factor component weight approach for futures prices from the Chicago Mercantile Exchange (CME), as well as deal prices from spot trading on the Electronic Broking Services (EBS), we gauge how foreign exchange spot and futures markets respond to news surprises. The results show that the spot rates provide more price discovery than do the CME futures rates overall; however, the contribution of the futures rates to price discovery increases in the time surrounding macroeconomic announcement releases.     

Could COVID-19 Infect the Consumer Prices Index?*

The spread of COVID-19 has led to sweeping changes in the way households work, spend their time and shop, resulting in different shopping patterns and rapid price changes in some goods. How will changes such as these be reflected in headline inflation measures such as the Consumer Prices Index (CPI)? This paper discusses problems in interpreting the CPI as a measure of how the cost of living is changing during the lockdown.     

The Formation of Inflation Expectations: Microdata Evidence from Japan

We propose a novel approach for measuring inflation expectations, which can alleviate the rounding number problem. Furthermore, we examine how consumers form inflation expectations. We find that consumers heterogeneously update their information sets on prices; 46% of the consumers collect information about the consumer price index at least once a quarter, while the remaining consumers less frequently or never obtain this information. We also find that forecast revisions are sensitive to a change in food prices. More than half of consumers are attentive only to a change in food prices and may form their inflation expectations using food price changes as a signal of fluctuations in the overall inflation rates. The existence of consumers who are inattentive to aggregate inflation casts doubt on the transmission of monetary policy through the management of expectations.     

Asset price dynamics,inflation and sectoral composition of output: a dependent economy model

This article develops a dependent economy model that focuses on the interactions between inflation and asset price dynamics under a flexible exchange rate and rational expectation. We assume that money wage adjusts instantaneously to clear the labour market. The asset prices are represented by the Tobin’s q and exchange rate. Using this framework, we will examine implications of monetary policy, fiscal policy, tariff liberalization and exogenous capital flows for inflation and asset prices, which in turn determine the allocation of labour and the sectoral composition of output. The effects of different exogenous and policy-induced shocks critically depend on the difference in the speeds of adjustment in commodity price and asset prices and multiple cross effects generated by changes in these prices.