Evidence on the Effects of Money Growth on Inflation with Regime Switching

Since the latter half of 2010, a new round of inflation has gradually been manifesting in China. The debate regarding whether excess money supply is responsible for this inflation has attracted scholars to investigate the effects of money growth on inflation. In this paper, we use correlation analysis to confirm the comovement between growth of monetary aggregates and inflation. We explore the asymmetric effects of monetary policy on inflation using the Markov regime‐switching model. The empirical results show that monetary policy can be more effective in curbing inflation in a high inflation state than in boosting the price level in a low inflation state. However, simply tightening the money supply might not be sufficient to suppress the price level. To this end, the Chinese Government should adopt other policies, such as supply stabilization policies, to help suppress the price level. Our study can help policy‐makers to determine the actual economic state and provides some policy implications for the current inflation.     

中美“宽松”货币政策、通胀预期与货币规则的探讨

2008年10月以来,中美两国均采取了不同程度的"宽松"货币政策来应对源于美国金融危机的全球经济衰退。本文的研究显示,2008年,中美两国货币供应量M1和M2增长率是相似的;2008年底到2009年8月,中国的M1和M2增长率分别为20.6%和21.4%,而美国的M1和M2增长率仅为3.36%和2.14%,中国的通胀预期是市场对"超级宽松"货币政策的合理反应。在过去的一年间,中国货币当局对美国金融危机的反应比美国的政策干预更为积极。而货币供应量的高增长孕育着价格上涨的风险,货币政策应当从被动协调美国的相机抉择转向遵循货币数量规则,抑制通胀预期,以实现宏观经济的稳定增长。     

Monetary Aggregates Targeting,Inflation Targeting and Inflation Stabilization in Ghana

The central bank of Ghana (BoG) has operated monetary aggregates targeting and inflation targeting since the 1980s, to ensure enhanced output growth, low unemployment and stable, low inflation. Under inflation targeting, the inflation rate averaged 13.26 per cent per annum between 2007 and 2015, compared with 29.22 per cent per annum under monetary aggregates targeting. The relatively lower inflation rates notwithstanding, an average inflation rate of 13.2 per cent per annum is far above the medium‐term target of 8 per cent. This paper has examined the effectiveness of monetary aggregates targeting and inflation targeting in keeping inflation at moderate levels. The autoregressive distributed lag (ARDL) model was applied to the data covering the period 1970–2015. The results show that monetary targeting has steered inflation to moderate levels only in the short run while inflation targeting has maintained low inflation rates in both short run and long run. But neither regime has kept inflation at stable levels and within the target band, due to the sluggish transmission of broad money supply and prime rate changes to inflation. We implore the monetary authorities to strengthen the institutional setup for steering short‐term interest rates in Ghana. They should also enhance the BoG Act 2002 (Act 612), to develop secondary anchors and rules around output, money supply and fiscal deficit. Finally, the monetary policy committee should monetary policy credibility and transparency through strengthening its communication framework.     

Inflation,economic activity and the operation of fiscal,foreign and monetary impulses in the Netherlands — A preliminary analysis, 1953–1973

Summary This paper tests both the strong and weak versions of the fiscal, foreign and monetary impulse hypotheses holding that each of these impulses is either a sufficient or a necessary condition for fluctuations in price and output to occur.Four impulses are distinguished: a fiscal impulse being a linear combination of autonomous changes in government expenditures and taxes, two foreign impulses measured by the growth rates of world trade and import prices, and a monetary impulse measured by (changes in) the growth rate of the stock of domestic or world money.When tested against the Dutch post-war experience of inflation and output fluctuations, all strong impulse hypotheses have to be rejected, as do the weak fiscal and foreign world trade hypotheses with respect to inflation and the weak fiscal hypotheses with respect to output growth. The weak foreign and monetary impulse hypotheses of output fluctuations, however, and the weak foreign import price and monetarist hypotheses of inflation are not rejected.     

Asset Prices in the Measurement of Inflation

The debate over including asset prices in the construction of an inflation statistic has attracted renewed attention in recent years. Virtually all of this (and earlier) work on incorporating asset prices into an aggregate price statistic has been motivated by a presumed, but unidentified transmission mechanism through which asset prices are leading indicators of inflation at the retail level. In this paper, we take an alternative, longer-term perspective on the issue and argue that the exclusion of asset prices introduces an excluded goods bias in the computation of the inflation statistic that is of interest to the monetary authority.We implement this idea using a relatively modern statistical technique, a dynamic factor index. This statistical algorithm allows us to see through the excessively noisy asset price data that have frustrated earlier researchers who have attempted to integrate these prices into an aggregate measure. We find that the failure to include asset prices in the aggregate price statistic has introduced a downward bias in the US Consumer Price Index on the order of magnitude of roughly ; percentage point annually. Of the three broad assets categories considered here – equities, bonds, and houses – we find that the failure to include housing prices resulted in the largest potential measurement error. This conclusion is also supported by a cursory look at some cross-country evidence.     

后危机时代美国货币政策的走势——兼论资产价格与货币政策操作规则

次贷危机使人们认识到,美联储货币政策操作失误难辞其咎。在全球化日益加深和美元为核心的国际货币体系下,美国不断下调利率的扩张性货币政策效应没有像过去那样迅速反映在商品价格上,而是主要表现为资产价格的攀升。由于美联储货币政策操作遵循了"泰勒规则"——把CPI当作最主要的监控对象,致使美联储错过了适时调整货币政策最佳的时机,导致美国信用扩张过度、资产泡沫,特别是房产泡沫不断升级。资产价格的上升最终会通过"财富效应"、"托宾q效应"、"金融加速器效应"等逐渐传导到商品价格上,随着石油等大宗商品价格的持续攀升,美联储开始急速提高利率,最终引发了次贷危机的爆发。后危机时代,美国的资产价格开始了迅速的回升,美联储应该吸取货币政策调整滞后的教训,适时地退出刺激,避免资产价格迅速上升和通货膨胀对经济复苏带来的不利影响。     

On the Sources of Inflation in Kenya: A Model‐Based Approach

We develop a semi‐structural new‐Keynesian open‐economy model – with separate food and non‐food inflation dynamics to study the sources of inflation in Kenya in recent years. To do so, we filter international and Kenyan data (on output, inflation and its components, exchange rates and interest rates) through the model to recover a model‐based decomposition of most variables into trends (or potential values) and temporary movements (or gaps) – including for the international and domestic relative price of food. We use the filtration exercise to recover the sequence of domestic and foreign macroeconomic shocks that account for business cycle dynamics in Kenya over the last few years, with a special emphasis on the various factors (international food prices, monetary policy) driving inflation. We find that while imported food price shocks have been an important source of inflation, both in 2008 and more recently, accommodating monetary policy has also played a role, most notably through its effect on the nominal exchange rate. We also discuss the implications of this exercise for the use of model‐based monetary policy analysis in sub‐Saharan African countries.     

中国财政赤字的通货膨胀效应

文章主要以1996年第1季度至2015年第3季度的居民消费价格指数CPI、财政赤字、利率和货币供应量的季度同比增长率等数据为基础,通过构建时变参数向量自回归(TVP-VAR) 模型,对我国财政赤字的通货膨胀效应进行了检验,并探讨了货币当局和财政当局的主导权归属问题。主要得出了二方面结论：一方面是现阶段财政赤字在短期内具有“凯恩斯效应”,而从长期看,既遵循“李嘉图等价”原理,又具有微弱的“挤入效应”;另一方面是财政当局虽占优于货币当局,但财政赤字需要配合货币政策才能影响价格水平。据此,向政府提出了“新常态”时期的政策建议,即政府在短期内可以通过赤字财政的方式诱导适度通胀来实现去库存,从供给侧引导经济增长,同时也要保持货币政策偏紧,增强人民银行的独立性,进一步优化财政收支结构。     

资产价格波动差异:由股市与房价观察

我国股票市场和住宅市场的市盈率与货币幻觉代理变量通货膨胀率、名义利率呈现明显的反向关系,即在高通胀时,市场被低估;在低通胀时,市场被高估。通货膨胀通过货币幻觉,影响资产估值高低。股市的市盈率波动幅度远大于住宅市场,股票价格波动主要来自估值倍数变化;而住宅的估值倍数波动小,房价波动更多地受到了估值倍数与租金变化的综合影响。     

Why is Inflation in China a Monetary Phenomenon？

This paper proposes that inflation in China during the post‐reform era (1978 onwards) is always a monetary phenomenon. We construct a multivariate dynamic model based on Friedman's quantity theory of money and use the standard Granger causality test to show that money growth contains significant predictive power for inflation during the underlying period. The finding is robust to alternative measures of monetary aggregates and both closed and open economy frameworks. The baseline finding of the paper indicates that quantitative tools remain the most important policy instruments for China to manage its inflation effectively.     

Money Growth,Output Growth,and Inflation: Estimation of a Modern Quantity Theory

This paper develops a long-run version of the quantity theory of money growth, real GDP growth, and inflation. Inflation rates, averaged for the years 1980-1993, are computed for 81 countries. These cross-section inflation rates are explained almost entirely by average M2 growth rates. In countries marked by high money growth and inflation, the estimated coefficients of M2 growth are strikingly close to one, strongly confirming the quantity theory. By contrast, in countries with relatively low money growth and inflation, the estimated money growth coefficient is only 0.69; the quantity theory offers a less complete explanation of inflation. Money growth and GDP growth are nearly orthogonal, consistent with long-run monetary superneutrality. The quantity theory is a reliable model of inflation for most countries, but not for those experiencing slow long-run money growth.     

通胀率动态与通胀惯性度量

本文从通胀惯性的理论模型出发,构建无限状态Markov区制转移的计量模型,实现对通胀惯性的有效度量。对美国通胀惯性的实证分析,证实货币政策工具的频繁使用会付出通胀惯性的代价,暴露出其单一目标货币政策框架的缺陷。我国央行的调控也已经对市场利率形成了显著的传导作用,谨慎地使用货币政策工具,使我国的通胀惯性在被货币政策短暂影响后,得以有效恢复。这表明坚持实行多目标、多手段与宏观审慎政策相结合的调控模式,对维护经济环境稳定与长期发展的重要性。十国通胀惯性的度量结果与对比分析,进一步佐证了本文观点。     

Temporary Acceleration of Inflation: What Can a Central Bank Learn from It?

In this article I present a model in which the monetary authority conducts policy by setting money supply in the presence of uncertainty and Bayesian learning about the economic environment. I find that there exists a set of assumptions under which a temporary acceleration of money growth and thus of inflation increases the government's overall expected utility. There also exists a set of assumptions under which a temporary deceleration of money growth and thus of inflation increases the government's overall expected utility.     

De-monetisation, inflation and coffee: the demand for money in Uganda

This paper investigates the recent macroeconomic history ofUganda using time series models for the demand for the threemain monetary aggregates. A collapse of income and high inflationled to de-monetisation. The flight from currency and demanddeposits was limited by their use for transactions, but demandfor time and savings deposits was largely a function of inflation.The role of the exchange rate and the price of coffee in determiningan asset demand for money was mixed. Re-monetisation since thelate 1980s has been slower than de-monetisation.     

Inflation in developing Asia

Inflation emerged as the single biggest macroeconomic challenge confronting developing Asia during 2007–2008, although inflationary pressures have abated since the second half of 2008 due to the global crisis. This paper empirically examines the relative importance of different sources of inflation in developing Asia. In particular, it tests the widely held view that the region's inflationary surge during 2007–2008 was primarily the result of external price factors such as oil and food shocks. Our central empirical result is that, contrary to popular misconception, Asia's inflation is largely homegrown and has arisen due to excess aggregate demand and inflationary expectations, rather than external price shocks. This suggests monetary policy will remain a powerful tool in fighting inflation in Asia, as well as in defusing the risks of deflation.     

Central Bank Autonomy,the Exchange Rate Constraint and Inflation: The Case of Italy, 1970–1992

This paper analyzes the determinants of inflation in Italy over the period 1970–1992. Particular emphasis is placed on the role of central bank independence in influencing monetary growth, and on the role of monetary growth and of the Exchange rate Mechanism (ERM) in affecting inflation. In the 1970s and early 1980s, when the Bank of Italy lacked independence and the ERM was still not credible, monetary growth was highly unstable and was the main determinant of Italian inflation, although oil price and tax shocks also played a role. After the March 1983 general exchange rate realignment and the French U-turn, the ERM became more credible and monetary growth stopped being a significant determinant of inflation; instead, the German inflation became the main variable influencing Italian inflation.     

货币错配与通货膨胀目标制的不可行性：针对我国现实

现阶段我国正面临人民币汇率稳定与物价稳定的"两难冲突",国内外一些学者主张我国应该采用通货膨胀目标制。从货币错配的角度探讨通货膨胀目标制在我国的可行性表明,由于存在较严重的货币错配及特殊的国情,现阶段我国尚不具备实行通货膨胀目标制的条件,短期内,通货膨胀目标制在我国并不具有可行性,货币政策适合以货币供应数量和价格作为混合使用的政策调控目标。     

基于马克思理论基础上的通货膨胀的控制

在通货膨胀初露端倪的情况下,决策者可以采用两种控制通胀的方式:一种是离线控制,即问题严重以后才进行调控的所谓"摸着石头过河"的方法。实践证明,这种控制方式可能会付出高昂的代价。另一种是在线控制,即在问题刚出现就进行微调,使均衡价格保持在可接受的范围内。本文在马克思经济理论基础上设计了一个在线跟踪控制系统:将货币供给与通货膨胀率、国民收入联系起来,从而实现了货币供给的主动内生化。决策者通过跟踪函数观测经济运行状态并制定收入跟踪系数和物价跟踪系数,就既可以有效地控制物价增长率,同时又可保证国民经济的平稳增长。     

Does Money Have a Role in Monetary Policy for Price Stability under Inflation Targeting in Thailand?

This paper deploys Thai quarterly data for the study period 1999q1–2014q4 to econometrically investigate the proposition that money growth is an important, if not the sole, determinant of inflation under inflation targeting and that the money growth-inflation relation is not conditional on the stability of the money-demand function. The autoregressive distributed-lag (ARDL) bounds-testing results suggest that, across the study period, the Thai money stock (narrow or broad), real output, prices, interest rates and exchange rates maintained a long-run equilibrium relationship. The associated error-correction model of inflation confirms the cointegral relationship among money (narrow or broad), real output, prices, interest rates and exchange rates. It also suggests that money growth has a significant distributed-lag impact on inflation. The presence of this money growth-inflation relationship was associated with a stable narrow money-demand function, whereas the broad money-demand function remained unstable. These results for the study period are consistent with the view that the causal relationship between money growth and inflation holds in Thailand under inflation targeting when the Bank of Thailand deploys a short-term policy interest rate, rather than a monetary aggregate, as the instrument of monetary policy and that this relationship is not conditional on the stability of the money-demand function.     

Money and price relationship in China

This paper investigates the effectiveness monetary policy by Granger causality tests in the two regimes of inflation and deflation, respectively. The surplus lag rolling estimation is applied to deal with the problem of the frequent structural changes in the Chinese monetary system. We found that the monetary policies have become less effective in stabilizing the price level in the deflation era that started from 1998. There is also empirical evidence to suggest that money was endogenous in China during the inflation period. This implies that the People's Bank of China had difficulty exercising the power of money supply to reduce inflation if the endogeneity was the result of the market behaviour. However, if the endogeneity was due to the government inflation-targeting rule, then there is no evidence to suggest that this rule has been effective for M0, M1 and M2 instruments, except for the M0 instrument during the inflation period of April 1990 to March 1995. Although it was found that money ceased to be endogenous in the deflation periods, it does not support the proposal of utilizing the money supply as a policy instrument, as we found that money is impotent in influencing price in the deflation regime. Our findings provide some empirical evidence to support the Chinese government adopting alternative policy instruments such as an active fiscal policy in the era of deflation.