Economic Globalization and Inflation in China: A Multivariate Approach

This paper evaluates whether globalization has increased the role of global factors in driving inflation in China. Unlike other published studies on the relationship between globalization and inflation, which mostly use Phillips curve models, this paper uses multivariate dynamic models to examine the dynamic interactions between globalization and inflation in China. Empirical results with quarterly data spanning from 1995 to 2012 show that the global output gap significantly affects the dynamics of inflation in China. In particular, the global output gap is superior to the domestic output gap in predicting domestic inflation. Impulse response and variance decomposition analyses reinforce this finding. Our results indicate that the central bank of China should take developments in global output into account in its monetary policy‐making process.     

Inflation and Structural Change in 50 Developing Countries

This study provides evidence on whether the inflation rate is stationary or nonstationary using quarterly inflation rate data from 50 developing countries. As Johansen [Johansen, Soren. “Testing Weak Exogeneity and Order of Cointegration in UK Money Demand Data,” Journal of Policy Modeling, 14, 3, June 1992, pp. 313–334] put it, “some time series such as the log of prices (P), have the property that even the inflation rate ΔP is nonstationary, whereas the second difference Δ²P is stationarity.” Results from fractional integration analyses provide evidence of long memory and confirm that the nonstationarity threshold of d³0.5 is satisfied in the majority of the cases. Results from recursive analyses indicate that, despite the finding that structural changes influence the behavior of the estimated integration parameters, evidence of long memory and nonstationarity can be found in each subsample as well as the full sample data.     

EXCHANGE RATE PASS‐THROUGH TO IMPORT PRICES IN SOUTH AFRICA: IS THERE ASYMMETRY?1

This paper examines the magnitude and speed of exchange rate pass‐through (ERPT) to import prices in South Africa. It further explores whether the direction and size of changes in the exchange rate have different pass‐through effects on import prices, i.e. whether the exchange rate pass‐through is symmetric or asymmetric. The findings of the study suggest that ERPT in South Africa is incomplete but relatively high. Furthermore, ERPT is found to be higher in periods of rand depreciation than appreciation, which supports the binding quantity constraint theory. There is also evidence to suggest that pass‐through is slightly higher in periods of small changes than large changes in the exchange rate in harmony with the menu cost theory when the invoices are denominated in the exporters' currency.     

Inflation Targeting and the Pass‐through Rate in East Asian Economies

There has been serious debate regarding whether the inflation targeting (IT) framework for the emerging market economies has been an effective nominal anchor. Focusing on Korea, Thailand and the Philippines, this article aims to contribute to the debate by providing empirical evidence on a decline in the ‘pass‐through’ effect with IT adoption. Our main findings are as follows. First, under the IT framework, Korea has followed an inflation responsive rule in a forward‐looking manner, while Thailand has adopted the rule in a backward‐looking manner. Second, only Korea experiences a reduction in the pass‐through effect under IT adoption, thereby showing a linkage between the forward‐looking inflation responsive rule and the pass‐through effect. Finally, a test of the sensitivity of inflation expectations to external price shocks in Korea supports this linkage.     

The Determinants of Time‐Varying Exchange Rate Pass‐Through in South Africa

The pass‐through of shifts in the rand exchange rate to consumer price inflation has been well documented for South Africa. Although estimates of the absolute level of pass‐through vary, some studies document a decline in pass‐through over time. In order to better illuminate the policy implications of pass‐through, this paper seeks to add to the literature by decomposing pass‐through into a number of time‐varying impulses. This has the advantage of providing deeper insights of pass‐through over time and across various monetary policy regimes. We then analyse the determinants of time‐varying pass‐through. Our results confirm that pass‐through has declined over time but is subject to a stable and low inflation environment. We also show that a volatile exchange rate leads to higher pass‐through.     

Multiple Structural Breaks and Inflation Persistence: Evidence from China

The degree of inflation persistence fluctuates more in developing countries than in industrialized countries. This is because there are more economic reforms in developing countries than in industrialized countries. Hence, it is important to study the inflation persistence in developing countries. The present paper investigates the pattern of inflation persistence in China, a developing and transitional economy. Specifically, the paper studies statistically the number of structural breaks in China's inflation persistence based on the monthly retail price index (MRPI) and the quarterly retail price index (QRPI) inflation series from 1983 to 2011. The findings show that there are five and three structural breaks in the MRPI and QRPI inflation persistence, respectively. The present paper also exposes a high degree of persistence over the whole sample period and a slight decline in the level of the persistence since 1994. Furthermore, the persistence of two inflation series does not change monotonously but with obvious cyclical patterns. Using these derived estimated structural breakpoints, likely causes of the breakpoints in inflation persistence are investigated. Finally, theoretical and practical implications are discussed.     

Measuring Persistence in Inflation: Evidence For angola

The purpose of this paper is to examine the degree of persistence in five inflation indicators for Angola, and to identify the implications for decision making. Our results suggest that when structural breaks are accounted for, all five inflation indicators are stationary. Second, our findings suggest that persistence is not too high. Moreover, the degree of persistence is similar among the five inflation indicators and throughout the sample period. Finally, our results also show that extracting the most volatile components of the headline inflation indicator does not generate a new inflation indicator that is less volatile and more persistent than the original. These results have important policy implications as the National Bank of Angola is preparing to change its monetary policy focus to a more inflation‐targeting regime.     

Inflation and Inflation Expectations in South Africa: an Attempt at Explanation

This paper examines the relationship between inflation and inflation expectations in South Africa. We use inflation expectations derived from the quarterly surveys conducted by the Bureau of Economic Research from 2001Q1 to 2011Q4 . Using these data, we estimate the model assuming that private sector expectations are a linear function of the inflation target and lagged inflation. The results indicate that economic agents' expectations largely depend on lagged inflation. This suggests that the South African Reserve Bank (SARB) has not been successful in anchoring expectations of the private sector since the adoption of the inflation targeting (IT) regime in 2000. We also find evidence indicating that the SARB's implicit inflation target lies above the upper bound of the official IT band. Finally, it appears that the SARB has been more concerned about output stabilisation than inflation stabilisation.     

Measuring Core Inflation in South Africa

Measures of core inflation convey critical information about an economy. They have a direct effect on the policymaking process, particularly in inflation‐targeting countries, and are utilised in forecasting and modelling exercises. In South Africa, the price indices on which inflation is based have been subject to important structural breaks following changes to the underlying basket of goods and the methodology for constructing price indices. This paper seeks to identify a consistent measure of core inflation for South Africa using trimmed means estimates, measures that exclude changes in food and energy prices, dynamic factor models, and wavelet decompositions. After considering the forecasting ability of these measures, which provide an indication of expected second‐round inflationary effects, traditional in‐sample criteria were used for further comparative purposes. The results suggest that wavelet decompositions provide a useful measure of this critical variable.     

Towards a Measure of Core Inflation using Singular Spectrum Analysis

This paper constructs a number of possible core measures of inflation using singular spectrum analysis (SSA). Annual changes in monthly inflation are decomposed into its trend, oscillatory and noise components in order to develop an understanding of the trend and cyclicality in South African headline inflation. Three cyclical components with differing amplitude and frequency are identified. The trend and cyclical components of inflation are found to be a good approximation of core inflation, the inertial part of inflation. These core measures are compared with other candidate core measures based on the properties of a good core inflation measure. Generally, the SSA measures outperform commonly used measures of core inflation based on both in‐ and out‐of‐sample performance.     

Mix of Fiscal and Monetary Policy Rules and Inflation Dynamics in China

The present paper examines the role of the mix of fiscal and monetary policy rules in determining inflation dynamics using fiscal and monetary policy reaction functions and Markov‐switching vector autoregression methods based on quarterly data in the period 1992–2007. Our results show that fiscal and monetary policies in China can be adequately described using some simple rules, and that significant regime shifts took place around 1998. Fiscal policy tended to be active and countercyclical in the pre‐1998 period, then switched to be passive and more countercyclical, whereas monetary policy was characterized as passive and procyclical in the pre‐1998 period, and switched to be active and countercyclical afterwards. The mix of fiscal and monetary policy rules can explain inflation dynamics better than the monetary policy rule alone. Therefore, price stability requires not only appropriate monetary policy but also appropriate fiscal policy.     

Inflation and Market Uncertainty in South Africa

Comparison of the movements in the VIX index, the rand – dollar exchange rate and South African CPI inflation reveals a striking resemblance between them, raising the question as to whether or not there is an empirical relationship among them. The aim of this paper is to determine whether or not changes in market uncertainty, as reflected in the VIX index, influence South African inflation. Given that the VIX index reflects market uncertainty, its impact on the inflation rate may differ between times of heightened uncertainty and normality, thus suggesting the presence of multiple regimes. To cater for this possibility, the analysis first uses the general‐to‐specific procedure (including squared and cubed values of dependent and independent variables) with impulse indicator saturation dummies to look for non‐linear behaviour in the form of statistically significant squared and cubed variables and clustered periods of outlier dummies that might reflect an alternative regime. Finding such periods, the analysis next uses a Markov‐switching model to model this non‐linear behaviour explicitly. The results show that market volatility as measured by the VIX indeed explains South African inflation. Moreover, as shown by the second regime of the Markov‐switching model, when market volatility is elevated, its influence on inflation also increases.     

HIGH AND VARIABLE INFLATION: FURTHER EVIDENCE ON THE FRIEDMAN HYPOTHESIS

This note, employing a GARCH model, finds a positive and significant relationship between the level and variability of inflation in South Africa in the period 1957:1‐2005:9. This provides evidence in support of Friedman's hypothesis that high inflation leads to more variable inflation.     

Mean Reversion in the Real Interest Rate and the Effects of Calculating Expected Inflation

We investigate the measured persistence in the real interest rate using a variety of methods to annualize inflation and calculate the real rate. Results from a battery of conventional unit root tests yield conflicting conclusions for the various real rates, adding to an existing confusion regarding mean reversion. Both long memory and exponential smooth‐transition autoregressive models (ESTAR) nonlinearity are considered as possible alternatives, and in contrast to the unit root test results, we find highly robust evidence against the unit root null. Based on the empirical results, Monte Carlo analysis is performed to study the disparate results obtained using fractional integration and unit root tests.     

"通胀目标法"在日本的争议

近年来，在日本国内围绕着应否采用“通胀目标法”一直展开着激烈的争议，研究和分析日本型“通胀目标法”的内容及实质，可期为我国在对“通胀目标法”这一新事物的研讨提供一个新视角。     

Has the Exchange Rate Pass‐Through changed in South Africa?

This paper uses the two‐stage exchange rate pass‐through (ERPT) framework instead of the direct pass‐through (PT) from the exchange rate to consumer inflation to assess the variation in the ERPT for South Africa from 1994 to 2014. The paper uses rolling‐window estimation to examine the possibility of change in the ERPT over time. In addition, it investigates the asymmetric behaviour of the ERPT over the business cycle. The results indicate that the ERPT for South Africa is complete in the first stage but incomplete in the second stage. It implies that retailers do not pass all the cost to consumers. The first‐stage ERPT has declined slightly since the Global Financial Crisis. Weak domestic demand and possibly the concentration of firms in the manufacturing sector are the main forces behind this low PT. Moreover, there is evidence of asymmetry in the first‐stage ERPT in that it tends to rise in the upturn phase of the economy compared to the downturn. The second‐stage ERPT shows a considerable decline since the adoption of the inflation‐targeting regime. Similar to the first‐stage case, the PT is muted in the downturn but rises in the expansionary phase by about 10%.     

Inflation and relative price variability: Evidence for India

This study decomposes relative price variability into a component due to inflation and a component due to real factors. The empirical results for India suggest that real factors account for 55% and inflation accounts for 45% of the variability in relative price changes. The proportion of inflation induced relative price variability increases with the rise in inflation, implying that inflation has distortionary effects on the structure of relative prices. Further, larger part of variability in the relative price changes seems to have been generated by fluctuations in the relative prices of a few commodities. The sector wise analysis shows that the major share of total relative price variability is contributed by fluctuations in the prices of manufactured products. The more crucial inference that emerges from the empirical analysis is that the inflation rate at which variability of relative price changes is minimum is found to be 4.5%, which is consistent with the official threshold rate often claimed by the Reserve Bank of India.     

SOUTH AFRICAN MARKET VOLATILITY,ASYMMETRY AND RETAIL INTEREST RATES PASS‐THROUGH

The purpose of this paper is to examine the interest rate transmission mechanism for South Africa as an emerging economy in a pre‐repo and repo system. It explains how the money market rate is transmitted to the retail interest rates both in the long run and short run, and tests the symmetric and asymmetric interest rate pass‐through using the error‐correction model (ECM) and the adjusted ECM‐exponential generalised autoregressive conditional heteroscedasticity (ECM‐EGARCH) (1,1)‐M methodology. This permitted the examination of the impact of interest rate volatility, along with the leverage effect. An incomplete pass‐through is found in the short run. From the entire sample period, a symmetric adjustment is found in the deposit rate, which had upward rigidity adjustment, while an asymmetric adjustment is found in the lending rate, with a downward rigidity adjustment. All the adjustments supported the collusive pricing arrangements. According to the conditional variance estimation of the ECM‐EGARCH (1,1), negative volatility impact and leverage effect are present and influential only in the symmetric deposit interest rate adjustment process in South Africa.     

中华经济区货币统一的可行性分析

在中国大陆与台港澳地区经济、贸易和金融合作日趋紧密的背景下,通过分析人民币国际化的发展趋势,从历史基础、现实选择、内在要求和历史的发展潮流等方面探讨了中国大陆与台湾澳地区货币统一的必要性;结合CEPA和ECFA协议的实施,联系当前欧债、美债危机与日本经济不景气状况,进一步分析了中国大陆与台湾澳地区货币统一的可行性。     

Re‐Examining the Role of Structural Change and Nonlinearities in a Phillips Curve Model for South Africa

Although studies generally find evidence of a Phillips curve‐type relationship in South Africa, uncertainty remains about the relevance of the model over a relatively long sample period, and whether conventional output gap measures are suitable proxies for demand pressure. This paper reviews research which shows that the Phillips curve model prevails over an extended sample, provided that the benchmark specifications include major structural changes in the balance‐of‐payments and labour market, and account for shifts in the root causes of inflation. When this is done, a linear specification with an output gap in levels correctly predicts the non‐trended inflation pattern over the period 1971(Q1)–1984(Q4), whereas a piecewise concave curve with an output gap in growth rates accurately forecasts the decelerating inflation pattern during 1986(Q1)–2001(Q2). A novel feature of the concave model is that it remains statistically robust and structurally stable when it is estimated until 2015(Q4). The concave model imparts a disinflationary bias, which suggests that monetary policy should be more expansionary during downswing phases of the business cycle and neutral during upswing phases. The analysis also considers how the shape of the Phillips curve might change if the balance‐of‐payments constraint on demand is relaxed in a significant way.