Inflation targeting and monetary policy in Canada: What is the impact on inflation uncertainty?

Inflation uncertainty has been demonstrated both theoretically and empirically to lower real output. This paper examines the impact of inflation targeting in Canada on inflation uncertainty, as well as persistence. Our results indicate that inflation targeting lowered inflation persistence, but actually increased uncertainty. Such an effect may be due to the failure of the previous formal target, the M1 money supply, to successfully combat inflation.     

Transparency and inflation: What is the effect on the Brazilian economy?

This paper presents empirical evidence concerning the effect of central bank transparency on inflation considering the Brazilian case after the adoption of inflation targeting. Two indices for measuring transparency, based on forward-looking and backwardlooking views, are developed. Furthermore, empirical evidence is divided into three steps: (i) analysis of simple correlation through scatterplot diagrams; (ii) use of VAR models; and (iii) estimation of different specifications of the Phillips curve using OLS and GMM based on the structural model used by the Central Bank of Brazil (CBB). The findings allow one to conjecture that inflation expectations are well coordinated by the CBB. In short, the transparency of information by the CBB is a very important tool for guiding public expectations and thus contributes to maintain inflation under control.     

What is the globalisation of inflation?

This paper studies the globalisation of CPI inflation by analysing core, energy and food components, testing for structural breaks in the relationships between domestic inflation and a corresponding country-specific foreign inflation series at the monthly frequency for OECD countries. The iterative methodology employed separates coefficient and variance breaks, while also taking account of outliers. We find that the overall pattern of globalisation in aggregate inflation is largely driven by convergence of the mean levels of the core component from the early 1990s, compatible with the introduction of inflation targeting in many countries of our sample. There is less evidence of increased synchronisation of shortrun movements in core than aggregate inflation, but an increased role for shortrun foreign energy inflation often contributes to the globalisation effect.     

Inflation is on the rise,but how far will it go?

• September's sharp rise in inflation is likely to mark the start of a steep ascent, which will likely see the CPI measure peaking above 3% in the middle of next year. The initial momentum will come through base effects but the main thrust will come from the pass‐through of the sharp depreciation of the pound. However, inflation is likely to then fall back rapidly in 2018 to average 2.2%.
• The CPI measure of inflation reached a near two‐year high in September. This was partly a function of last autumn's sharp falls in petrol and energy prices dropping out of the calculation, but it also reflected a continuation of the recent pickup in core pressures.
• The degree to which inflation accelerates from this point will depend upon the pass‐through of the weaker pound. The literature suggests that the maximum impact on inflation will come after a year, but there is some variation in the estimates of the degree of pass‐through. Studies conducted over a long period suggest the degree of pass‐through may have become smaller over time.
• We expect the weak economic backdrop to limit the extent to which the weaker pound pushes up inflation, though we still see the CPI measure averaging 2.7% in 2017, with a brief period in the middle of the year where inflation exceeds 3%, hastening a letter of explanation from the Governor of the Bank of England to the Chancellor. However, we would not see this prospect as a serious impediment to a further rate cut, given that the MPC has made it clear that it is prepared to tolerate such an overshoot.
• Inflation should then drop back through 2018 as sterling recovers and the 2017 acceleration provides powerful base effects. This is somewhat at odds with the Bank of England's latest forecast, which shows inflation lower in 2017 but then accelerating in 2018, implying a much more protracted pass‐through.

     

Probability distributions or point predictions? Survey forecasts of US output growth and inflation

We consider whether survey respondents’ probability distributions, reported as histograms, provide reliable and coherent point predictions, when viewed through the lens of a Bayesian learning model. We argue that a role remains for eliciting directly-reported point predictions in surveys of professional forecasters.     

How reliable are forecasts of GDP growth and inflation for countries with limited coverage?

This paper analyses the performance of GDP growth and inflation forecasts for 25 transition countries between 1994 and 2007, as provided by 13 international institutions, including multilateral, private and academic forecasters. The empirical results show that there is a positive correlation between the number of forecasters covering a given country and the forecast accuracy. Simple combined forecasts are shown to be unbiased and more accurate than most of the individual forecasters, although also inefficient. However, only a few institutions provide efficient and unbiased forecasts, with just one out of 13 forecasters providing both unbiased and efficient forecasts of both GDP growth and inflation in the observed period. The directional analysis shows a correct forecast of the change in the forecast indicator in over two thirds of cases. However, the eventual outcome is within the range of available forecasts in less than half of the cases, with more than 40% of outcomes for GDP growth above the highest forecast. Encouragingly, forecasts are shown to be improving over time and becoming more accurate with the increase in the number of forecasting institutions – forecast accuracy measured by mean absolute error improves by 0.3 percentage points for growth and by 0.2 percentage points for inflation for each additional institution providing forecasts.     

Do survey joiners and leavers differ from regular participants? The US SPF GDP growth and inflation forecasts

If ‘learning by doing’ is important for macro-forecasting, newcomers might be different from regular, established participants. Stayers may also differ from the soon-to-leave. We test these conjectures for macro-forecasters’ point predictions of output growth and inflation, and for their histogram forecasts. Histogram forecasts of inflation by both joiners and leavers are found to be less accurate, especially if we suppose that joiners take time to learn. For GDP growth, there is no evidence of differences between the groups in terms of histogram forecast accuracy, although GDP point forecasts by leavers are less accurate. These findings are predicated on forecasters being homogeneous within groups. Allowing for individual fixed effects suggests fewer differences, including leavers’ inflation histogram forecasts being no less accurate.     

Does the option market produce superior forecasts of noise‐corrected volatility measures?

This paper assesses the robustness of the relative performance of spot‐ and options‐based volatility forecasts to the treatment of microstructure noise. Robustness of the results to the method of constructing option‐implied forecasts is also investigated. Using a test for superior predictive ability, model‐free implied volatility, which exploits information in the volatility ‘smile’, and at‐the‐money implied volatility, which does not, are both tested as benchmark forecasts of a range of alternative volatility proxies. The results provide compelling evidence against the model‐free forecast for three Dow Jones Industrial Average stocks, over a 2001–2006 evaluation period. In contrast, the at‐the‐money implied volatility forecast is given strong support for the three equities over this period. Neither benchmark is supported for the S&P500 index. Importantly, the main qualitative results are invariant to the method of noise correction used in measuring future volatility. Copyright © 2008 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.     

Organized crime and business subsidies: Where does the money go?

Business support policies are widespread in advanced countries, to foster employment and productivity. This paper analyses the role of organized crime in the allocation of public subsidies to businesses. We assemble an innovative data set on the Italian mafia at municipality level and test whether mafia-ridden municipalities receive a disproportionally higher amount of funds. We exploit exogenous variation at municipality level to instrument mafia activity and show that the presence of organized crime positively affects the probability of obtaining funding and the amount of public funds. Organized crime is also found to lead to episodes of corruption in the public administration sector. A series of robustness checks confirms the above findings.     

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.     

Inflation Target Credibility: Do the Financial Markets Find the Targets Believable?

We investigate the credibility of inflation targeting (IT) central banks (CBs) by estimating perceived inflation targets of the financial markets. We calculate financial markets’ beliefs about the inflation targets of 24 IT countries. Then, we analyse whether the financial markets’ beliefs about inflation targets match the announced targets. We conclude that the perceived upper bound of the inflation target is significantly higher than the announced one in many countries. Additionally, the perceived target band is narrower and asymmetric around the mid‐point of the target for most CBs. We examine the implications of these findings and find that IT CBs are more likely to miss their targets when the perceptions of the financial markets are higher than the announced IT targets. These results indicate that IT CBs should pay attention to the perceptions of the announced targets when implementing policy actions.     

Self-directed work teams: the wave of the future?

Although teams are currently a popular means of solving work force needs in health care, there has been little use of self-directed work teams--autonomous units without a front-line manager and empowered to control their own work. This article analyzes key differences between self-directed work teams and traditional teams, looks at three cases in which self-directed work teams were implemented, and discusses some of the barriers to the formation and use of self-directed work teams.     

The future of the CAP? Problems and Proposals

The CAP has been both a corner-stone and stumbling-block for the European Union. Agenda 2000 is proclaimed by the European Commission as a radical change in the policy to meet the challenges of the new millennium. However, this Agenda still does not resolve the fundamental problems facing the policy. It is time for some genuine leadership to be displayed through the development of a serious and relevant strategy of reform for one of the founding policies of the Union.     

Can inflation targeting reduce price information asymmetry and alleviate corruptive behavior? Evidence from developing countries

This paper examines the role of inflation targeting as a price signaling mechanism reducing price information asymmetry and potentially reducing incentives for corruptive actions through its direct control on the inflation rate, thus simultaneously increasing institutional quality. The obtained evidence suggests that adopting inflation targeting lowers corruption in a sample of 61 developing countries for the period between 1990 and 2018. Countries that have adopted inflation targeting experience lower corruption levels, as measured by the corruption perceptions (CP) index, controlling for other relevant determinants of corruption identified in the empirical literature, such as inflation, level of income, income distribution, trade openness and the rule of law. This result is sensitive to the type of inflation targeting adopted. Soft (unofficial) inflation targeting has no significant effect on the corruption level, giving support to the claim that strong institutional commitment, accompanied by transparency and constant communication with regards to inflation targets by the central bank, provides an adequate price signaling mechanism. In addition, the analysis provides evidence that an efficient rule of law reduces corruption levels significantly, although its effects are rather modest to support the claims that it can solely lessen corruptive behavior in the sample of developing countries.     

Taiwan Chinese managers' personality: is Confucian influence on the wane?

This paper conjectures that Chinese managers' personality in the Taiwan context, as shaped by Chinese tradition, has been moderated in response to their career experience. The paper begins with an introduction to Chinese culture and its impact on values and personality. It then goes on to argue that if the cultural context can nurture personality, we should therefore expect that as the context changes, personality can be moderated via economic reforms as in the case of Taiwan. It is reasonable to assume that among the Taiwanese, the occupational grouping that has most actively felt the impact of these reforms is managers who have been at the forefront of making them happen. We are not aware of any studies focusing on Taiwanese managers which attempt to assess how far their personality is still shaped by Confucian values which have strongly influenced Chinese traditions, and how far it has experienced changes that have come about through modernization and economic reform. We have addressed this research gap using the Chinese Personality Assessment Inventory (CPAI), an indigenous Chinese personality instrument developed by Cheung et al. (1996) with the support of an interview programme and a biographical data sheet to flesh out details related to the subjects' lives and experience. The findings suggest that the traditional Chinese personality with its grounding in Confucianism has been gradually eroding but that some elements of it are still strongly in evidence. The contribution of this study lies in illustrating how personality may be undergoing convergence through modernization. It also signals that cultural boundaries with reference to emic and etic research may also be converging. To the extent that this is so, future studies on culture and business management in China may need to reappraise their understanding of the nature of Chinese culture, values and personality, and how they have responded to business forces in a globalized world.     

Where is the entrepreneurship bang for the patenting buck? Utility versus design patents

This research contributes to the literature on entrepreneurship by studying whether design patents and utility patents have similar effects on entrepreneurial activity. Other contributions of this research include comparing the relative influences on startup versus established entrepreneurs and the effects of patents versus trademarks. Results, based on a panel of U.S. states, show that established entrepreneurs benefit from both types of patenting and from trademarks, whereas startup entrepreneurs significantly benefit from only design patents, and the effects of design patents and trademarks are opposite. These findings suggest that the entrepreneurship bang from the patenting buck might differ across patenting types.     

Time-consistency of risk measures: how strong is such a property?

Decisions in Economics and Finance - Quite recently, a great interest has been devoted to time-consistency of risk measures in its different formulations (see Delbaen in Memoriam Paul-André...