Inflation Targeting as a Coordination Device

The paper analyses inflation targeting when two independent policy authorities (a central bank and a National Government) have divergent preferences for the optimal policy mix. We demonstrate that the main advantage of inflation targeting, as a policy regime, is that it represents a simple proxy for full coordination between policy authorities. Inflation targeting therefore helps because it reduces the conflicts between fiscal and monetary policy, expecially where there are strong spillovers between the two policies. These results are then tested, and largely validated, in a simulation framework using a small open economy calibrated model.     

Inflation targeting as a way of precommitment

This paper considers an institutional arrangement in which thegovernment assigns a publicly-announced inflation target toan instrument-independent central bank, but retains the discretionto revise the inflation target after wages have been set. Weargue that since this arrangement is transparent, it solvesCanzonen's private information problem, ensures perfect monitoringof the government, and makes reputauonal forces more effectiveCases are characterized in which, for this reason, inflationtargeting mitigates the inflationary bias of monetary policy.     

Forecasting Inflation: An Art as Well as a Science!

Summary In this study, we build two forecasting models to predict inflation Harmonised Index of Consumer Prices (HICP) for the Netherlands and for the euro area. The models provide point forecasts and prediction intervals for both the components of the HICP and the aggregated HICP -index itself. Both models are small-scale linear time series models allowing for long-run equilibrium relationships between HICP components and other variables, notably the hourly wage rate and the import or producer prices. The model for the Netherlands is used to generate the Dutch inflation projections for the eurosystem’s Narrow Inflation Projection Exercise (NIPE). The recursive forecast errors for several forecast horizons are evaluated for all models, and are found to outperform a naive forecast and optimal AR models. Moreover, the same result holds for the Dutch NIPE projections, which have been provided quarterly since 1999. The aggregation method to predict total HICP inflation generally outperforms the direct method, except for long horizons in the case of the Netherlands. We thank an anonymous referee of this journal and participants of the second Conference of the Euro Area Business Cycle Network, the 10th International Conference on Computing in Economics and Finance and seminar participants at De Nederlandsche Bank, Erasmus University Rotterdam and Maastricht University, in particular Filippo Altissimo, Bob Chirinko, Bertrand Candelon, Denise Osborn and Adrian Pagan for useful comments.     

Inflation as the lesser evil

Abstract

The authors of this analysis of the German inflation seek to show the interdependence between the various factors which made that hyper-inflation possible, and the effects of the inflation on production, employment and the distribution of incomes. They reject an explanation of the German inflation in terms of the quantity theory which was widely held in the inter-war years. Instead they attempt to explain developments by showing the inter-relationship between the balance of payments, rates of exchange and the trend of internal prices and wages. According to this balance of payments theory, the supply of money will passively adjust itself to a rise in the level of prices and wages, the government budgetary deficit brought about by the faster rate of increase in prices and wages than in tax revenue being financed inter alia by the issue of notes.     

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.     

The Fed as the Engine of Worldwide Inflation

The United States is a sovereign country that has the right to follow its own monetary policy. By an accident of history, since 1945 it is also the center of the world dollar standard—which remains surprisingly robust to the present day. So the choice of monetary policy by the U.S. Federal Reserve can strongly affect its neighbors for better or for worse. Beginning with the Nixon shock in 1971, American policy makers have frequently ignored foreign complaints. But by ignoring feedback effects from the rest of the world, the Fed has made both the world and American economies less stable.     

Globalization and Inflation: a Swiss Perspective

Is inflation caused by global developments instead of domestic monetary factors? This paper explores the role of globalization for inflation, especially in Switzerland, one of the smallest and most open economies where the globalization hypothesis should be most relevant. It provides tests of whether Swiss inflation is causally related to inflation elsewhere. It also examines Swiss inflation in a P* model and whether it is also influenced by inflation abroad or by import prices. It finds that Swiss inflation is made at home. Evidence is presented of a co-integrating relationship of Swiss and German inflation, likely due to common inflation objectives.     

通胀一只等待落地的靴子

2009年第一季度的经济数据出来了,IGDP同比增长6.1%,CPI同比下降0.6%.官方以及部分专家对一季度数据表示乐观,认为中国经济已经出现企稳回暧迹象.     

高校图书馆资源利用的经济学分析——以占座现象为例

近年来,图书馆占座现象在各高校已是屡见不鲜,文章通过对高校图书馆占座现象的危害性进行论述,基于经济学角度运用公地悲剧和囚徒困境模型分析了高校图书馆占座现象的成因,最后针对现象成因,提出了解决方案。     

Is Real Estate Really an Inflation Hedge? Evidence from Taiwan*

This study examines whether Taiwan's housing returns hedge against expected and unexpected inflation. In other words, how well does the rise in housing returns compensate for the costs added as a result of the shrink in wealth and purchasing power? Within the exponential generalized autoregressive conditional heteroskedasticity in mean model framework, we further explore the impact of conditional hetero‐risk on housing return and the influence of asymmetric information on conditional risk. Over the period from 1991 to 2006, the empirical results reveal negative relationships between housing returns and expected as well as unexpected inflation, proving the ineffective inflation hedge of Taiwan's housing investment. The determinant of this phenomenon is the leverage shock between ‘good news’ and ‘bad news’.     

Optimal Exchange Intervention in an Inflation Targeting Regime: Some Cautionary Tales

Devaluations and fiscal retrenchments coming from developed countries are buffeting less developed countries. Many emerging market countries have adopted inflation targeting as “best practice,” but now they are being advised to enhance their inflation targeting regimes with foreign exchange intervention. Here we use a DSGE model to tell some cautionary tales about this advice. A Taylor rule guides interest rate setting, while foreign exchange interventions are used as a second tool of monetary policy. These interventions are effective in our model since domestic and key currency bonds are imperfect substitutes. We derive optimal (Ramsey) intervention policies in response to foreign devaluations and fiscal retrenchments, and find that they are rather complex. So, we compare the optimal responses to policies that simply smooth real or nominal exchange rate movements. Our results suggest that discretion may be the better part of valor: pure inflation targeting may come closer to the optimal policy than exchange rate smoothing. A secondary result may also be of some interest: foreign exchange interventions have a stronger impact on inflation and output in an inflation targeting regime than do sterilized interventions; the Taylor rule augments the effects of a given intervention.     

The Term Structure as a Predictor of Real Activity and Inflation in the Euro Area: A Reassessment

We study the informational content of the term structure of interest rates on future developments in inflation and real activity for the euro area, explicitly taking into account the possibility of a time-varying risk premium. We put forward a simple adjustment procedure for the term premium based on the rational expectations hypothesis of the term structure and provide evidence that the predictive content of term spreads for future developments in industrial production improves significantly if the adjusted term spread is used. The adjustment also achieves some (less systematic) improvements in the forecasting abilities of the term spread for headline inflation and core inflation. JEL no. E43, E44, E47     

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.     

The long wave — a real phenomenon?

Summary To explain the decline in economic growth after the beginning of the 1970s, several authors have reverted to the theory of the 40- to 60-year-long Kondratieff cycle. This article concentrates on the empirical foundations of this cycle. After a critical survey of the important investigations by Kondratieff, Imbert and Van Duyn, the thesis of the long wave is subjected to a new test on the basis of time series of indicators of real economic growth in Great Britain, France, (West-) Germany, and the United States. The results of this investigation are clearly negative with respect to the existence of a long wave in real variables in these countries.I wish to thank W. Driehuis and H.A.A.M. Thoben for their comments on an earlier draft of this article.     

Inflation in a newly industrialized country: The case of Korea

This paper investigates the nature and causes of inflation in Korea, a newly industrialized country. The basic framework is the two-way causation between prices and wages. The estimated results show that the postulated hypotheses are upheld and that there are multiple causes of inflation. In particular, capital and material costs, which may be considered as external factor costs in Korea, play a significant role, implying that the impact of external inflation on internal inflation in a rapidly developing country is substantial.