The non-linear response of US state-level tradable and non-tradable inflation to oil shocks: The role of oil-dependence

This paper investigates the effects of oil supply, oil-specific consumption demand, oil inventory demand shocks, and global economic activity shocks on state-level tradable and non-tradable inflation in the US. We use oil shock data following the work of Baumeister and Hamilton (2019) and estimate both linear and non-linear impulse responses using a lag-augmented local projections model in a panel context. Our results from a linear model show that both supply and demand-side oil shocks have a statistically significant impact on both types of inflation. While supply, global economic activity, and demand shocks have a greater impact on tradable inflation, non-tradable inflation responds more strongly to inventory shocks. Further, the non-linear model results provide evidence of heterogeneity in the magnitude and persistence of impact between high- and low-oil dependence regimes. Non-tradable inflation is more sensitive to nearly all components of oil price shocks in the high-oil dependence regime.     

Heterogeneous Inflation Expectations and Learning

Using the panel component of the Michigan Survey of Consumers, we estimate a learning model of inflation expectations, allowing for heterogeneous use of private information and lifetime inflation experience. Life experience inflation has a significant impact on individual expectations, but only for 1‐year‐ahead inflation. Public information is substantially more relevant for longer horizon expectations. Even controlling for life experience inflation and public information, idiosyncratic information explains a nontrivial proportion of the inflation forecasts of agents. Women, ethnic minorities, and less educated agents have a higher degree of heterogeneity in their idiosyncratic information, and give less importance to recent movements in inflation.     

Fritz Schmidt,Henry Sweeney and Stabilised Accounting

Dean and Clarke (1989) argue that the German Betriebswirtschafl theorist Fritz Schmidt, who was the author of the first comprehensive replacement cost model in the literature, had a greater influence on the development of Henry Sweeney's stabilised accounting ideas than the price-level-adjustment proponents, Eugen Schmalenbach and Walter Mahlberg. This paper argues that to identify Sweeney's stabilisation ideas with Schmidt's—even those incorporating replacement costs—is misleading. Sweeney's economic orientation was fundamentally different from Schmidt's and for this reason Sweeney never fully accepted Schmidt's model. Sweeney's and Schmidt's differing economic orientations reflect national attitudinal differences that have manifested themselves in more recent inflation accounting developments.     

The Happiness Trade‐Off between Unemployment and Inflation

Unemployment and inflation lower well‐being. The macroeconomist Arthur Okun characterized the negative effects of unemployment and inflation by the misery index—the sum of the unemployment and inflation rates. This paper makes use of a large European data set, covering the period 1975–2013, to estimate happiness equations in which an individual subjective measure of life satisfaction is regressed against unemployment and inflation rate (controlling for personal characteristics, country, and year fixed effects). We find, conventionally, that both higher unemployment and higher inflation lower well‐being. We also discover that unemployment depresses well‐being more than inflation. We characterize this well‐being trade‐off between unemployment and inflation using what we describe as the misery ratio. Our estimates with European data imply that a 1 percentage point increase in the unemployment rate lowers well‐being by more than five times as much as a 1 percentage point increase in the inflation rate.     

The Effect of Sequential Information Arrival on Asset Prices: An Experimental Study

A complete understanding of security markets requires a simultaneous explanation of price behavior, trading volume, portfolio composition (ie., asset allocation), and bid-ask spreads. In this paper, these variables are observed in a controlled setting—a computerized double auction market, similar to NASDAQ. Our laboratory allows experimental control of information arrival—whether simultaneously or sequentially received, and whether homogeneous or heterogeneous. We compare the price, volume, and share allocations of three market equilibrium models: telepathic rational expectations, which assumes that traders can read each others minds (strong-form market efficiency); ordinary rational expectations, which assumes traders can use (some) market price information, (a type of semi-strong form efficiency); and private information, where traders use no market information. We conclude 1) that stronger-form market models predict equilibrium prices better than weaker-form models, 2) that there were fewer misallocation forecasts in simultaneous information arrival (SIM) environments, 3) that trading volume was significantly higher in SIM environments, 4) and that bid-ask spreads widen significantly when traders are exposed to price uncertainty resulting from information heterogeneity.     

Asymmetries in Price‐Setting Behavior: New Microeconometric Evidence from Switzerland

In this paper, we follow the recent empirical literature that has specified reduced‐form models for price setting that are closely tied to (S, s) ‐pricing rules. Our contribution to the literature is twofold. First, we propose an estimator that relaxes distributional assumptions on the unobserved heterogeneity. Second, we use the estimator to examine the prevalence of positive price changes in a low‐inflation environment. Our model estimates suggest that, if inflation falls from 0.9% to zero, the share of positive price changes in all price changes falls from 63.6% to 56.2%.     

Financial literacy and financial resilience: Evidence from around the world

We measure financial literacy using questions assessing basic knowledge of four fundamental concepts in financial decision making: knowledge of interest rates, interest compounding, inflation, and risk diversification. Worldwide, just one in three adults are financially literate—that is, they know at least three out of the four financial concepts. Women, poor adults, and lower educated respondents are more likely to suffer from gaps in financial knowledge. This is true not only in developing countries but also in countries with well-developed financial markets. Relatively low financial literacy levels exacerbate consumer and financial market risks as increasingly complex financial instruments enter the market. Credit products, many of which carry high interest rates and complex terms and conditions, are becoming more readily available. Yet only around half of adults in major emerging countries who use a credit card or borrow from a financial institution are financially literate. We discuss policies to protect borrowers against risks and encourage account holders to save.     

Monetary Policy in the Media

Just like private companies depend crucially on their ability to reach customers, policymakers must communicate with private agents to be successful—and much of this communication is channeled through the media. This is especially true for central banks, which need to build credibility among the general public. This paper analyses how favorably the print media report about the European Central Bank's (ECB) monetary policy decisions. Favorableness is, inter alia, influenced by the amount of information communicated by the ECB. There are, however, also indications of a critical monitoring role of the media, which reports more negatively when inflation exceeds the inflation target.     

Is There a Better Way to Examine Income Inequality?

Dividing U.S. tax returns into half‐millionaires (those reporting adjusted gross income (AGI) of $500,000 or more in a given year) and their complement allows greater use of IRS data on income sources than is possible with an analysis that examines a fixed percentage of returns, such as the top one percent. Contrary to popular perception and media rhetoric, the inflation‐adjusted difference between the reported AGI of half‐millionaires and the rest actually declined by 25 percent from 1993 to 2011. The income gap between half‐millionaires and other filers reflects differences in kinds of income, with half‐millionaires deriving a much larger fraction of their income from capital investments whose varying returns make that component of income—and thus the income of half‐millionaires—more volatile. The percentage of total tax returns filed by half‐millionaires in a given year and the percentage of their income derived from taxable gains reported on Schedule D account for virtually all of the variation in the half‐millionaire percentage of aggregate AGI. As this finding suggests, the expanding income share for half‐millionaires does not signify that some collection of privileged rich have become richer. The significant net growth in the percentage of filers who are half‐millionaires has been uneven because a significant proportion of their income derives from volatile Schedule D gains, which are higher during economic expansions and lower during recessions. The incomes of half‐millionaires—and especially millionaires—are anything but recession proof. But even with that volatile component of income included, when their percentage of returns doubles, their percentage of income less than doubles, consistent with declining income inequality.     

International Evidence on the New Keynesian Phillips Curve Using Aggregate and Disaggregate Data

We present a unique empirical analysis of the properties of the New Keynesian Phillips Curve (NKPC) using an international data set of aggregate and disaggregate sectoral inflation. Our results from panel time‐series estimation clearly indicate that sectoral heterogeneity has important consequences for aggregate inflation behavior. Heterogeneity helps to explain the overestimation of inflation persistence and underestimation of the role of marginal costs in empirical investigations of the NKPC that use aggregate data. We find that combining disaggregate information with heterogeneous‐consistent estimation techniques helps to reconcile, to a large extent, the NKPC with the data.     

The Fed's Communications: Suggestions for Improvement

The chief economist of Berenberg Capital Markets proposes three broad ways of improving the Fed's communications: (1) establish a more systematic approach to achieving its dual mandate; (2) clarify the proper role of monetary policy in achieving those objectives by distinguishing what is within the scope of monetary policy from what is clearly beyond it; and (3) articulate the Fed's goals and role in achieving macro‐prudential risk management and financial stability. With these three ends in view, the author begins by urging FOMC members to refrain from making public comments immediately following government data releases and, when making public speeches and statements, to relate their comments on the economy to the Fed's dual mandate. The author also suggests three modifications of the Fed's official Policy Statement following FOMC meetings. First, each statement should start with an assessment of monetary policy and its consistency with achieving the Fed's statutory mandate, rather than the Fed's assessments of the economy and its subsectors with which such statements now begin. Second, the Fed should communicate separate explicit risk assessments of inflation and of the prospects for employment and the economy. (The Fed's current practice of sometimes dropping the risk assessments from statements and replacing them with nuanced language—for example, on changes in inflation and inflationary expectations—can be a source of confusion.) Third, all statements should discuss as clearly as possible the Fed's strategy for its balance sheet and unwind policy. The Fed's quarterly Summary of Economic Projections (SEPs) should be redesigned to include FOMC estimates of forecast uncertainties and what they imply for monetary policy, and such alternative forecasts should be presented in place of the current central tendency and range of forecasts. The redesigned SEPs should be (1) based on a rigorous Fed assessment of expected monetary policy under different situations and contingency planning, and (2) as transparent as possible about the Fed's economic and inflation outlooks, the uncertainties in forecasting, and the conditionality of monetary policy. An illustration is provided of the alternative SEPs that would replace the current “dot plots” and include the Fed's forecasts of nominal GDP, calculated confidence intervals around the FOMC's median forecasts, and three separate forecasts of the Fed's perceived appropriate Fed funds rate. Finally, the author views the “optimal solution” as a more systematic approach in which the Fed publishes a single forecast based on a model consistent with its dual mandate that shows how the appropriate Fed funds rate path would be expected to vary under different economic and inflation outcomes. Such an approach, by thus mapping likely monetary policy responses to alternative plausible economic and inflation outcomes, would increase the Fed's accountability as well as its transparency.     

Two targets,two instruments: Monetary and exchange rate policies in emerging market economies

This paper examines the case for using two instruments—the policy interest rate and sterilized foreign exchange market intervention—in emerging market countries seeking to stabilize inflation and output while attenuating disequilibrium currency movements. We estimate policy reaction functions for central banks, documenting that indeed both instruments tend to be deployed. We show that whether discretionary monetary policy or inflation targeting is preferable depends on the volatility of shocks relative to the central bank's time inconsistency problem. The use of FX intervention as a second instrument improves welfare under both regimes, but more so under inflation targeting. Overall, a regime of (two-way) sterilized intervention-cum-inflation targeting can result in better outcomes in the presence of imperfect capital mobility/asset substitutability—yielding similar gains to a discretionary policy while still delivering the inflation target.     

金融知识与小微企业创新意识、创新活力——基于中国小微企业调查(CMES)的实证研究

根据人力资本理论的解释,金融知识体现了小微企业主对经济金融相关信息的认知与决策、以及使用正规金融工具与服务的能力,因此将作用于小微企业的创新意识与创新活力。实证结果发现,金融知识显著提升了小微企业的创新意识,表现为更重视创新的必要性与员工的创新能力,也有效改善了创新活力。这对相关政府部门与金融机构进一步普及金融知识与开展面向小微企业主的培训,提供了积极的数据支持。进一步分析表明,金融知识通过市场认知机制与信贷约束机制分别作用于创新意识与创新活力。在市场化高、非国有经济发展好、金融市场化高的地区,小微企业的创新活力强而创新意识不强,金融知识的作用主要在于提升创新意识,即提升市场认知机制发挥作用;而在市场化低、非国有经济发展差、金融市场化低的地区,小微企业的创新意识强而创新活力不强,金融知识的作用主要在于提升创新活力,即缓解需求抑制型信贷约束的机制发挥作用。     

Risk Premiums in Dynamic Term Structure Models with Unspanned Macro Risks

This paper quantifies how variation in economic activity and inflation in the United States influences the market prices of level, slope, and curvature risks in Treasury markets. We develop a novel arbitrage‐free dynamic term structure model in which bond investment decisions are influenced by output and inflation risks that are unspanned by (imperfectly correlated with) information about the shape of the yield curve. Our model reveals that, between 1985 and 2007, these risks accounted for a large portion of the variation in forward terms premiums, and there was pronounced cyclical variation in the market prices of level and slope risks.     

Inflation targeting & implications of oil shocks for inflation expectations in oil-importing and exporting economies: Evidence from three Nordic Kingdoms

In the context of the debate on inflation targeting, this paper analyses the impact of the oil shocks on inflation expectations in three Nordic Kingdoms. A NARDL framework is applied to data from Jan 1994 to June 2018 on the Kingdoms of Norway, Sweden and Denmark. Our key findings suggest that there are considerable nonlinearities and asymmetries in the relationship between inflation expectations, oil shocks and economic determinants of inflation expectations. The expectations formulated in the past have a very significant negative impact on future inflation expectations (adaptive expectations) and there is heterogeneity in the adaptiveness pace. A country's net oil trade position seems to reflect on the impact of oil price shocks on the inflation expectations and there is asymmetry and downwards inflation expectations rigidity. There is strong evidence of exchange rate pass-through to inflation expectations. Prevailing regimes of price stability can support to anchor future inflation expectations. Reduction in fiscal deficit and increases in money supply has a positive impact while unemployment has a negative impact on inflation expectations. The cumulative multiplier analysis showed that the impact of oil shock was symmetric in Sweden and Denmark but asymmetric in Norway which is a large net oil exporter. Besides the adoption of explicit inflation targeting regime by Sweden and Norway, the inflation expectations in the underlying economies are prone to the oil price shocks and macroeconomic determinants. These shocks pose a whole set of challenges to monetary authorities in these economies and the findings in the subject treatise provide some guidance on how each shock may transmit.     

Large‐Sample Evidence on Firms’ Year‐over‐Year MD&A Modifications

The Securities and Exchange Commission (SEC) has expressed concern about the informativeness of firms’ Management Discussion and Analysis (MD&A) disclosures. A firm's MD&A is potentially uninformative if it does not change appreciably from the previous year after significant economic changes at the firm. We introduce a measure for narrative disclosure—the degree to which the MD&A differs from the previous disclosure—and provide three findings on the usefulness of MD&A disclosure. First, firms with larger economic changes modify the MD&A more than those with smaller economic changes. Second, the magnitude of stock price responses to 10‐K filings is positively associated with the MD&A modification score, but analyst earnings forecast revisions are unassociated with the score, suggesting that investors—but not analysts—use MD&A information. Finally, MD&A modification scores have declined in the past decade even as MD&A disclosures have become longer; the price reaction to MD&A modification scores has also weakened, suggesting a decline in MD&A usefulness.     

中国通货膨胀预期及其影响因素分析——基于混频无套利Nelson-Siegel利率期限结构扩展模型

综合国债市场的利率期限结构信息以及不同频率的宏观信息,本文构建混频无套利Nelson-Siegel利率期限结构扩展模型,在对不同期限债券进行一致性定价理论约束下,提取了中国通货膨胀预期的期限结构并对其进行影响因素分析。研究结果表明,本文模型提取的通胀预期期限丰富、结果稳健,具有较好的参考价值。通胀预期水平和变动响应主要受货币增长率、通胀率及全球食品价格变动等国内外相关宏观变量的影响,与国债收益率因子之间的关系不显著;国债收益率因子对中长期通胀预期的方差波动具有较强解释力,表明国债定价反映了未来通胀的不确定性。本文研究有助于充分利用我国宏观与金融市场信息条件,有效发现和锚定通胀预期,一方面,研究结果可为政策制定者和市场投资者提供科学的决策参考,另一方面,研究方法对丰富宏观金融领域的分析框架具有参考价值。     

中国通货膨胀预期及其影响因素分析——基于混频无套利Nelson-Siegel利率期限结构扩展模型

综合国债市场的利率期限结构信息以及不同频率的宏观信息,本文构建混频无套利Nelson-Siegel利率期限结构扩展模型,在对不同期限债券进行一致性定价理论约束下,提取了中国通货膨胀预期的期限结构并对其进行影响因素分析。研究结果表明,本文模型提取的通胀预期期限丰富、结果稳健,具有较好的参考价值。通胀预期水平和变动响应主要受货币增长率、通胀率及全球食品价格变动等国内外相关宏观变量的影响,与国债收益率因子之间的关系不显著;国债收益率因子对中长期通胀预期的方差波动具有较强解释力,表明国债定价反映了未来通胀的不确定性。本文研究有助于充分利用我国宏观与金融市场信息条件,有效发现和锚定通胀预期,一方面,研究结果可为政策制定者和市场投资者提供科学的决策参考,另一方面,研究方法对丰富宏观金融领域的分析框架具有参考价值。     

Three aspects of the Swiss term structure: an empirical survey

The term structure is an important transmitter of, and indicator for, monetary policy. This paper studies the Swiss term structure using monthly data from 1989 to 2005. We study the impact of the new monetary policy strategy that the Swiss National Bank (SNB) adopted at the beginning of 2000 on three aspects of the term structure. First, we test the expectations hypothesis and find it confirmed at the short end of the yield curve. At the long end, time-varying term premia seem present. Second, we ask whether the yield curve contains information regarding future inflation and economic activity. We find that a steepening of the yield curve predicted an increase in economic activity in the short term before the change in policy strategy, but not thereafter. Third, we study the contemporaneous reaction of the term structure to macroeconomic conditions and conclude that the SNB’s commitment to stabilizing inflation may have become more credible after the change in the monetary policy strategy.      

Financial literacy and its consequences: Evidence from Russia during the financial crisis

The ability of consumers to make informed financial decisions improves their ability to develop sound personal finance. This paper uses a panel data set from Russia, an economy in which household debt has grown at an astounding rate, to examine the importance of financial literacy and its effects on behavior. The paper studies both the financial and real consequences of financial illiteracy. Even though consumer borrowing increased very rapidly in Russia, only 41% of respondents demonstrate an understanding of interest compounding and only 46% can answer a simple question about inflation. Financial literacy is positively related to participation in financial markets and negatively related to the use of informal sources of borrowing. Moreover, individuals with higher financial literacy are significantly less likely to report experiencing a negative income shock during 2009 and have greater availability of unspent income and higher spending capacity. The relationship between financial literacy and availability of unspent income is higher in 2009, suggesting that financial literacy may better equip individuals to deal with macroeconomic shocks.