Is Hungary ready for inflation targeting?

This paper considers whether the adoption of inflation targets for Hungary, an emerging market economy, is a desirable option. We consider the qualitative and quantitative pre-conditions required for the successful adoption of inflation control objectives. Although it is found that the National Bank of Hungary appears to possess a reaction function with some of the main features found in those estimated for industrial economies, there remain certain aspects of the relationship between the government and the central bank that require clarification and further evolution.     

Is there a case for higher inflation targets?

In recent years several observers have suggested that higher inflation targets might be economically beneficial. We examine the case for this, but find it unconvincing. There has been a large fall in the risk premia embedded in government bond yields over the past 25 years. Higher inflation targets would risk reversing some of these gains. We also doubt that higher inflation targets would yield the additional policy flexibility that is sometimes claimed. Nevertheless, we do detect a shift by central banks over recent years towards more tolerance of inflation risks at the margin – as seen in the adoption of ‘forward guidance’ and more ‘flexible’ inflation targeting.     

What determines inflation in the US,job growth or unemployment?

An empirical investigation of postwar US data reveals that movements in inflation are much more strongly associated with job growth than the unemployment rate. Job growth is found to be strongly related to inflation even after accounting for the effect of the unemployment rate. The residual influence of the unemployment rate on inflation is small, however, after accounting for the effect of job growth. The data shows that in the past inflation has tended to decline when job growth is weak even if unemployment is low. This suggests that the relatively slow job growth of recent years may partly explain the puzzle that, during much of the current expansion, the US economy has experienced little inflation in spite of low unemployment.     

Does money help predict inflation? An empirical assessment for Central Europe

This paper investigates the predictive ability of money for future inflation in the Czech Republic, Hungary, Poland and Slovakia. We construct monetary indicators similar to those the European Central Bank regularly uses for monetary analysis. We find in-sample evidence that money matters for future inflation at the policy horizons that central banks typically focus on, but our pseudo out-of-sample forecasting exercise shows that money does not in general improve the inflation forecasts vis-à-vis some benchmark models such as the autoregressive process. Since at least some models containing money improve the inflation forecasts in certain periods, we argue that money still serves as a useful cross-check for monetary policy analysis.     

The dynamics of US inflation: Can monetary policy explain the changes?

We investigate the relationship between monetary policy and inflation dynamics in the US using a medium scale structural model. The specification is estimated with Bayesian techniques and fits the data reasonably well. Policy shocks account for a part of the decline in inflation volatility; they have been less effective in triggering inflation responses over time and qualitatively account for the rise and fall in the level of inflation. A number of structural parameter variations contribute to these patterns.     

Are financial spreads useful indicators of future inflation and output growth in EU countries?

This paper seeks to address the policy issue of the usefulness of financial spreads as indicators of future inflation and output growth in the countries of the European Union, placing a particular focus on out-of-sample forecasting performance. Such analysis is of considerable relevance to monetary authorities, given the breakdown of the money/income relation in a number of countries and following increased emphasis of domestic monetary policy on control of inflation following the broadening of the ERM bands. The results confirm that for some countries, financial spread variables do contain some information about future output growth and inflation, with the yield curve and the reverse yield gap performing best. However, the relatively poor out-of-sample forecasting performance and/or parameter instability suggests that the need for caution in using spread variables for forecasting in EU countries. Only a small number of spreads contain information, and improve forecasting in a manner which is stable over time. © 1997 John Wiley & Sons, Ltd.     

Interest rate movements and US consumers’ inflation forecast errors: is there a link?

The Fisher effect maintains that movements in short-term interest rates largely reflect changes in expected inflation. Since expected inflation is subject to error, we ask whether interest rates move in response to over- and under-predictions of inflation. In answering, we measure expected inflation by the consumers’ forecast of inflation derived from the Michigan Surveys of Consumers (MSC). Our findings for 1978–2013 indicate that the MSC inflation forecasts were unbiased, efficient, and directionally accurate. For 1978–2007, (i) interest rates moved downward (upward) in response to MSC over-predictions (under-predictions) of inflation, and (ii) MSC inflation forecast errors had directional predictability for interest rates. However, no link between interest rate movements and MSC inflation forecast errors is detected for 2008–2013 when monetary policy kept short-term interest rates unusually low.     

Is there a unit root in the inflation rate? Evidence from sequential break and panel data models

Using sequential trend break and panel data models, we investigate the unit root hypothesis for the inflation rates of thirteen OECD countries. With individual country tests, we find evidence of stationarity in only four of the thirteen countries. The results are more striking with the panel data model. We can strongly reject the unit root hypothesis both for a panel of all thirteen countries and for a number of smaller panels consisting of as few as three countries. The non-rejection of the unit root hypothesis for inflation is very fragile to even a small amount of cross-section variation. © 1997 John Wiley & Sons, Ltd.     

Writing the future： A theoretical justification for a uniform and universal system of currency in accounting for inflation

This paper submits that the advantages gained by introducing a single currency at the domestic level, applies equally to the economy at the global level. The advantages gained are （1） a reduction of the inflation rate to one common rate （if required） amongst all states, （2） a possible reduced interest rate, （3） an expansion in investment, （4） an increase in development and trade due to the removal of uncertainty, （5） the reduction in transaction costs, and （6） the reduction in the cost of capital （Moshirian, 2004, p. 306）. A single global currency has immediate implications in accounting for inflation as it presents an opportunity for the permanent removal of problems associated with accounting for inflation. This paper addresses the phenomenon of inflation and how accounting measurement and valuation associated with inflation is removed by the introduction of a single global currency.     

How does interest rate policy affect inflation? A simple general equilibrium model with the interest rate as the policy instrument

This paper analyses the connection between the assumptions often made on the utility functions of economic agents when general equilibrium is considered. Concretely, we analyse the effect of certain assumptions regarding the elasticity of marginal utility for both the existence of equilibrium and, assuming equilibrium exists, for the effect that raising the nominal interest rate has on the equilibrium inflation rate. Typical macroeconomic wisdom states that an increase in the interest rate will decrease inflation, and this seems to have been the basis for real-life macroeconomic policy in several countries. However, this wisdom is based on models in which the money supply, and not the interest rate, is the policy instrument. Using a very simple general equilibrium model of intertemporal consumption, this paper finds sufficient conditions for the negative relationship to hold (and for it not to hold) in the short run, when monetary policy is characterised by a given nominal interest rate. Above all, it is shown how the relative risk aversion characteristics that are assumed of the economic agents are important.