What determines China's inflation?

We examine determinants of inflation in China. Analyses of both year-on-year and month-on-month growth data confirm that excess liquidity, output gap, housing prices, and stock prices positively affect inflation. Impulse response analyses indicate that most effects occur during the initial five months and disappear after ten months. Effects of real interest rates and exchange rates on inflation are relatively weak. Our results suggest that the output gap is as important as excess liquidity in explaining the inflation trajectory. The central bank should closely monitor asset prices given their spillovers to inflation. Currently liquidity measures are still central for controlling inflation, but further liberalization of interest rates and exchange rates are crucial.     

Expected inflation, expected stock returns, and money illusion: What can we learn from survey expectations?

We show empirically that survey-based measures of expected inflation are significant and strong predictors of future aggregate stock returns in several industrialized countries both in-sample and out-of-sample. Empirically discriminating between competing sources of this return predictability by virtue of a comprehensive set of expectations data, we find that money illusion seems to be the driving force behind our results. Another popular hypothesis – inflation as a proxy for aggregate risk aversion – is not supported by thedata.     

Short-term trends in China’s income inequality and poverty: evidence from a longitudinal household survey

In the past three decades, income inequality in China has increased rapidly relative to both China’s own past and other countries at similar levels of economic development. Using recent longitudinal data from the China Family Panel Studies (CFPS), this article examines changes in income inequality and poverty prevalence between 2010 and 2012. Surprisingly, we find a modest decline in income inequality as measured by the Gini coefficients in the CFPS data. The urban–rural gap narrowed, with rural families enjoying faster income growth than urban families enjoyed. Income growth was greater for middle-income families than for families with either high or low incomes in 2010. By all measures, poverty was greatly reduced between 2010 and 2012. Two-thirds of families that had been poor in 2010 escaped poverty by 2012.     

Do inflation targets anchor inflation expectations?

We suggest a simple test of whether an inflation target anchors private-sector inflation expectations. The test is easy to compute and it is robust to various sources of misspecification. The test may be a useful alternative to dispersion measures commonly studied in research on inflation targeting. Using data for 22 inflation targeting countries, we find for many countries that the forecasters scatter their inflation forecasts away from the inflation target. We account for the endogeneity of inflation targets, we study the variability of our finding across countries and across time, and we study to which extent our results depend on the level and variability of inflation targets.     

Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach

This paper aims to study the role of gold as a hedge against inflation based on local monthly gold prices in China, India, Japan, France, the United Kingdom and the United States of America in periods ranging from 1955 to 2015. We extend the literature by using a novel approach with the nonlinear autoregressive distributed lags (NARDL) model (Shin et al., 2014). The main advantage of this model relies on its ability to simultaneously capture the short- and long-run asymmetries through positive and negative partial sum decompositions of changes in the independent variable(s). Moreover, we rely on local gold prices instead of those from London converted into local currencies like in most of previous studies. The results show that gold is not a hedge against inflation in the long run in all cases. In the short run, gold is an inflation hedge only in the UK, USA, and India. Furthermore, there is no long-run equilibrium between gold prices and the CPI in China, India and France. This difference may be due to traditional aspects of gold and custom controls for gold trade in these countries. Our robustness check suggests that the data time-frequency does not change the specification of the NARDL model but can change conclusions regarding the role of gold as a hedge against inflation in certain countries.     

Do household definitions matter in survey design? Results from a randomized survey experiment in Mali

Household definitions used in multi-topic household surveys vary between surveys but have potentially significant implications for household composition, production, and poverty statistics. Standard definitions of the household usually include some intersection of keywords relating to residency requirements, common food consumption, and intermingling of income or production decisions. Despite best practices intending to standardize the definition of the household, it is unclear which types of definitions or which intersections of keywords in a definition result in different household compositions. This paper conducts a randomized survey experiment of four different household definitions in Mali to examine the implications for household-level statistics. This approach permits analysis of the trade-offs between alternative definition types. We find that additional keywords in definitions increase rather than decrease household size and significantly alters household composition. Definitions emphasizing common consumption or joint production increase estimates of the levels of household assets and consumption statistics, but not on per adult equivalency asset and consumption statistics, relative to open-ended definitions of the household. In contrast, definition type did not affect production statistics in levels, though we observe significant differences in per adult equivalency terms. Our findings suggest that variations in household definition have implications for measuring household welfare and production.     

Rational expectations in the foreign exchange market? Some survey evidence

Although many papers have already proposed empirical models of currency crises, the timing of such crises has received relatively little attention so far. Most papers use indeed a static specification and impose the same lag structure across all explanatory variables. This, by construction, prevents from specifically timing the crisis signals sent by the leading indicators. The objective here is to fill this gap by considering a set of dynamic discrete choice models. The first contribution is to identify how early in advance each explanatory variable sends a warning signal. Some indicators are found to signal a crisis in the very short run while others signal a crisis at more distant horizons. The second contribution is to show that state dependence matters, albeit mostly in the short run. The results have important implications for crisis prevention in terms of the timeliness and usefulness of the envisaged policy response.     

What determines post-compulsory academic studies? Evidence from the longitudinal survey of young people in England

We show that educational attainments at the end of the compulsory schooling stage are powerful predictors for post-compulsory educational choices in England. In particular, the single academic success indicator of achieving the Government’s gold standard in GCSE is able to predict virtually all the observed incidences of post-compulsory studies for academic qualifications. Notwithstanding, Two-Stage Least Squares estimation which exploits variations in school starting age induced by school entry rules suggests that the least-squares effect of achieving the gold standard in GCSEs on studying for academic qualifications is due to ability bias or reverse causation.     

What principles should inform poverty indices? Insights from a cross-country survey

1,392 undergraduate students from Bolivia, Brazil, France, Italy, Kenya, Laos, Switzerland and the UK are involved in a survey exploring the support for customary poverty measurement principles. Our study allows us to enhance the studies of Amiel and Cowell (Empir Econ 22:571–588, 1997; The distribution of welfare & household production. International perspectives, 1998) in a variety of directions. We find that the support for Weak Monotonicity crucially depends on whether the poor income rises or falls and the (generally low) agreement with Regressive Transfer is even lower if the recipient is lifted out of poverty as a consequence of the transfer. Further, the support for a certain poverty axiom can significantly differ according to the characteristics of the income distributions to be compared, as is the case for Population Replication and Poverty Growth when, respectively, the society to be replicated and the poor person added to society are very poor ones. Our results also suggest a certain concern for the poorest in society and cast doubts on the desirability of continuity at the poverty line. Finally, notable heterogeneity emerges across relevant subgroups. Poverty perceptions are significantly different for students living in high- and low-income countries: the latter more strongly support Weak Monotonicity and Regressive Transfer, unveiling a more pronounced sensitivity to lower levels of poor incomes. Interesting differences, though less marked, are also found between the views of economics students and those of their colleagues from other disciplines.     

Optimistic income expectations and meeting those expectations: What matters for well-being in a developing country?

This paper examines the impact of income expectations and the extent to which these expectations are met, on subjective well-being. For the Indonesian sample, expectations had asymmetric effects on well-being, with pessimistic expectations having a strong adverse effect compared with a weak positive effect of optimism. Optimism improves only females' and not males' well-being while pessimism has the reverse effect on both genders' well-being. Although unmet expectations reduced well-being for all subgroups, the mediating role of social capital to negate this was limited to some subgroups. Results point toward a gendered policy agenda and the rural–urban divide to improve well-being.     

Assessing the (de-)anchoring of households’ long-term inflation expectations in the US

Well-anchored inflation expectations play an important role in the achievement of price stability. The (de-)anchoring of long-term inflation expectations in the US has been under debate since the sub-prime crisis. This paper assesses and explains the evolution of the degree of (de-)anchorage of households’ long-term inflation expectations in the US during the period of 1990 to 2019, in a time-varying framework. We find the long-term inflation expectations to be de-anchored during the entire study period. The de-anchorage was greater in the first half of the 1990s. Subsequently, it has declined but has not yet anchored. An increase in inflation perception reduces the degree of de-anchorage in a (persistently) low-inflation perception period, whereas it causes a rise in the degree of de-anchorage when inflation perception is around its long-term average or is persistently high. Further, a rise in economic policy uncertainty also increases the de-anchorage of households’ long-term inflation expectations. This suggests that the Federal Reserve System (Fed) may find it beneficial to pay more attention to households’ inflation perception.     

Should bank branching be regulated? Theory and empirical evidence from four European countries

Along with the liberalisation of bank branching, which was pushed ahead in most OECD member countries during the past several decades, the fear of overbranched markets has arisen. In a model of spatial competition, the welfare effects of bank branching regulation are investigated and empirical results are presented from a pooled cross-section time series analysis from four European countries. It is shown that for all observations in the sample, fewer branches would have been socially undesirable. Moreover, the frequently posed hypothesis that a positive relationship exists between the number of branches and the price for financial intermediation is rejected.     

How anchored are inflation expectations in EMU countries?

Anchored inflation expectations help stabilize inflation. Previous results indicate that monetary policy has been effective in breaking the link between actual and expected inflation at the euro area level. In this paper we examine whether this is also true at the national level. We define the ‘disconnect’ between inflation and inflation expectations and then proceed to examine the extent to which this disconnect exists for a number of euro area countries. Our findings suggest that for some countries, their own inflation experiences still affect national inflation expectations, and certainly more by comparison to how they affect the aggregate euro area level.     

What horizon for targeting inflation?

We investigate optimal horizons for targeting inflation in response to different shocks and their properties. Our analysis is based on a well specified macroeconometric model of Norway. We find that optimal horizons are highly shock-specific and do not increase with concern for output and/or interest rate fluctuations beyond some shock-specific levels. Optimal horizons increase with the degree of persistence in shocks while they are not affected by the size of a shock unless the central bank is averse to interest rate volatility. In the face of multiple shocks, however, sizes as well as signs of shocks become important for optimal horizons even when the central bank is not averse to interest rate volatility. This is because shocks of different signs and sizes may amplify or outweigh each others’ effects.     

Functional food consumption and depression among the elderly — What can we learn from a longitudinal survey?

Depressive syndromes among the elderly have been recognized as important public health issues. This study contributes to this issue by investigating the causal effect of functional food consumption on depression among the elderly using a unique panel dataset of 1480 individuals drawn from a national representative survey of Taiwanese elderly in 1999, 2003 and 2007. In addition to estimating a standard individual fixed effect model, a random trend fixed effect model which allows for both unobserved individual-specific time invariant and variant factors is estimated. The results of the random trend model point to a significant and negative effect of functional food consumption on depression among the elderly. However, an insignificant effect is predicted by the standard fixed effect model. In addition to functional food consumption, living arrangement with children and engagement in the social activities of the elderly also significantly decrease the likelihood of the elderly becoming depressed.     

Does the monetary policy committee still care about inflation? Some evidence from a small macroeconomic model

This article derives an optimal Taylor rule for the UK economy using a simple estimated model based on data prior to the financial crisis of 2008. Optimal policy rules are calculated using simulation of the model over a long time period coupled with a search for optimal Taylor rule parameters using the Newton-Raphson loss minimization algorithm. The weights in the pre-crisis loss function are then inferred from the Taylor rule parameters estimated from the period corresponding to Bank of England independence, i.e. 1997–2008. These estimates are consistent with a low weight on inflation relative to output stabilization even before the crisis. The model is therefore consistent with the hypothesis that there has been no change in Bank of England preferences and that the Bank has responded to the crisis in a way which would have been predicted on the basis of its pre-crisis behaviour.     

Rationality of inflation–output forecasts of MMS survey: international evidence

We analyse the individual rationality of inflation and output forecasts from Money Market Survey (MMS) for a group of G7 countries and EU under asymmetric univariate Linlin and Linex loss functions. We also test for joint rationality of inflation–output forecasts using the forecast rationality test under multivariate asymmetric loss functions proposed by Ulu (2013). Our results indicate that rationality is often rejected under symmetric loss, and results improve towards rationality when asymmetric loss functions are assumed. The assumption of multivariate asymmetric loss compared to univariate asymmetric loss provides further evidence towards rationality. We also analyse directional forecast accuracy of the inflation and output forecasts and find that the inflation–output forecasts of MMS are valuable when considered both jointly and separately.     

Do vertical spillovers differ by investors’ productivity? Theory and evidence from Vietnam

Developing countries are eager to host foreign direct investment to receive positive technology spillovers to their local firms. However, what types of foreign firms are desirable for the host country to achieve spillovers best? We address this question using firm‐level panel data from Vietnam to investigate whether foreign Asian investors in downstream sectors with different productivity affect the productivity of local Vietnamese firms in upstream sectors differently. Using endogenous structural breaks, we divide Asian investors into low‐, middle‐, and high‐productivity groups. The results suggest that the presence of the middle group has the strongest positive spillover effect. The differential spillover effects can be explained by a simple model with vertical linkages and productivity‐enhancing investment by local suppliers. The theoretical mechanism is also empirically confirmed.