Does money have a role in the inflation process? Evidence from Australia

Inflation, defined as a sustained increase in the price level, is considered a monetary phenomenon, as it can be explained within the framework of money‐demand and money‐supply relationships. In the extant literature, money growth is shown to remain causally related to inflation across countries and over time, irrespective of the exchange rate regime and stability of the money‐demand function. Nevertheless, emerging literature suggests a diminishing role of money in the conduct of monetary policy for price stability, especially under inflation targeting. Monetary policy in Australia under inflation targeting since 1993 is an example of policy that denies a relationship between money growth and inflation. The proposition that money does not matter insofar as inflation is concerned seems odd in both theory and the best‐practice monetary policy for price stability. This paper uses annual data for the period 1970–2017 and quarterly data for the period 1970Q1–2015Q1. It deploys both the Johansen cointegration approach and the autoregressive distributed lag (ARDL) cointegration approach to investigate for Australia whether money, real output, prices and the exchange rate (non‐stationary variables) maintain the long‐run price‐level relationship that the classical monetary theory suggests in the presence of such stationary variables as the domestic and foreign interest rates. As expected, the empirical findings for Australia are consistent with the classical long‐run price‐level relationship between money, real output, prices and the exchange rate. The error‐correction model of inflation confirms the presence of a cointegral relationship among these variables; it also provides strong evidence of a short‐run causal relationship between money supply growth and inflation. On the basis of a priori theoretical predictions and empirical findings, the paper draws the conclusion that the monetary aggregate and its growth rate matter insofar as inflation is concerned, irrespective of the strategy of monetary policy for price stability.     

Book reviews

Abstract

It is a commonly accepted view that the parity theory of forward exchange based on the law of one price was first formulated by Keynes. In this article we assess the preliminary shapes of the interest parity (IP) relation. After reviewing the early beginnings of the IP relation, we investigate two French economists of the mid-nineteenth century who have hitherto received no adequate attention. We argue that Bonnet and Juglar ought to be considered pioneers in the assessment of IP relation since Goschen's contribution is related to the specificity of ‘long’ exchange rates at a bimetallic time.     

Professor Fisher and the quantity theory – a significant encounter

Abstract

Irving Fisher's encounter with the Quantity Theory of Money began in the 1890s, during the debate about bimetallism, and reached its high point in 1911 with the publication of The Purchasing Power of Money. His most important refinement of the theory, derived from his recognition of bank deposits as means of exchange, was to treat their out of equilibrium recursive interaction with inflation as integral to it. This treatment underlay both his 1920s work on the business cycle as a “dance of the dollar” and his advocacy of subjecting monetary policy to a legislated price stability rule, initially to be based on his “compensated dollar” scheme. Fisher's failure to recognise the onset of the Great Depression even as it was happening was directly related to his faith in the quantity theory's seeming implication that price level stability in and of itself guaranteed the continuation of prosperity, while his subsequent work on the debt deflation theory of great depressions initially failed to repair the damage that this failure did to his reputation, and to that of the quantity theory. In the 1930s Fisher nevertheless remained an active supporter of various schemes to reflate and then stabilise the price level. His subsequent influence on the quantity theory based Monetarist counter-revolution that began in the 1950s lay, directly, in its deployment of his analysis of expected inflation on nominal interest rates, and, indirectly, in its espousal of the case for subjecting monetary policy to a legislated rule.     

A new model to evaluate the long-term cost effectiveness of orphan and highly specialised drugs following listing on the Australian Pharmaceutical Benefits Scheme: the Bosentan Patient Registry

Abstract

Background: Pharmaceutical subsidy schemes are under increasing pressure to evaluate the cost effectiveness of new highly specialised and orphan drugs for universal subsidy. In the absence of longer-term outcome data, drug sponsors often present modelled data, which can carry a significant level of uncertainty over longer-term projections. Risk-sharing schemes between drug sponsor and government may provide an acceptable method of balancing the uncertainty of longer-term cost effectiveness with the public demand for equitable and timely access to new drugs.

Methods: The Bosentan Patient Registry (BPR) is an example of a unique risk-sharing model utilised in Australia aiming to provide clinical evidence to support the modelled predictions, with the registry survival outcomes linked to future price. Concomitant medication, health and vital status data was collected from clinicians, government health departments and death registries.

Results: The BPR has identified a number of issues surrounding registry governance, ethics and patient privacy, and the collection of timely and accurate data, which need to be addressed for the development of a generic registry model for systematic evaluation.

Conclusion: The success of a generic drug registry model based on the BPR will be enhanced by addressing a number of operational issues identified during the implementation of this project.

Material in this paper was presented in an oral presentation to the National Medicines Symposium: Quality Use of Medicines, 7–9 June 2006, Canberra, Australia.     

The effects of exchange rate pass-through and cost channel on price level: The case of fragile five countries

ABSTRACT

In this study, we investigated whether the exchange rate and the interest rate had an effect on the inflation rate in the fragile five countries between the years of 1996Q4 and 2015Q4. In this context, a model was created to estimate the effect of interest rate and exchange rate on the inflation rate. The methods used in the study take into account cross-section dependence and heterogeneity. As a result of the analysis, it was determined that there was an exchange-rate and interest-rate pass-through effect in the fragile five countries. Moreover, it was found out that the cost channel and price puzzle were effective in Indonesia and South Africa but were not effective in Turkey, Brasil and India.     

Inverse probability weighting to control for censoring in a post hoc analysis of quality-adjusted survival data from a clinical trial of temsirolimus for renal cell carcinoma

Abstract

Objectives: The Belgian third-party payer wishes to set reimbursement tariffs at a level that reflects the costs of orthotic braces. This article aims to calculate production and distribution costs of a prefabricated hard neck and knee brace and to explore whether Belgian tariffs and actual retail prices correspond with estimated costs of these two braces.

Methods: The cost model considered manufacturing costs, general overheads, research and development costs, warehousing costs, profit and distribution margins. Data were gathered from manufacturers, a production site visit, desk research, a decomposition of finished products and stakeholder interviews. The price year was 2007.

Results: The cost model estimated a retail price of €55–€150 for the neck brace, depending on assumptions. The estimated retail price for the neck brace was lower than the reimbursement tariff of €194 and the actual retail price of €241. The estimated retail price of €331–€694 for the knee brace was lower than the actual retail price of €948.

Conclusions: Actual retail prices and reimbursement tariffs for a neck brace and a knee brace exceeded prices based on estimated costs. Therefore, there appears to be scope for reducing tariffs.     

Monetary policy and exchange rate dynamics in the Spanish economy

As the Spanish economy gets more integrated in international markets, the real exchange rate becomes a key determinant of the monetary transmission. In this paper we trace out the dynamic response of prices, output and the exchange rate following a monetary policy shock. We estimate a structural VAR model whose identification scheme is based on the long run properties common to a large class of models. The results suggest that a small model with efficient asset markets plus nominal inertia and long run monetary neutrality, captures the essential features of the monetary transmission mechanism in Spain. The interest rate shock is well identified and the exchange rate overshoots its long run value. There are no signs of liquidity puzzle nor of price puzzle or exchange rate puzzle either.     

NEW INSIGHTS INTO THE STRUCTURE OF THE WORLD ECONOMY*

The United Nations' newly completed study of purchasing power parities covering 34 countries varied in region, income level, and form of economic organization shows the systematic differences between the usual view of the structure of the world economy arising out of international comparisons based upon foreign exchange rate conversions and the structure one sees when actual prices are available. The real per capita GDP of developing countries is understated relative to developed countries when exchange rates are used in converting countries' national income accounts to a common currency, with the degree of understatement for any two countries being inversely related to the per capita income difference between them. The reason for this is that relative prices in the non-traded goods sector are lower relative to traded goods prices in low income countries. The systematic pattern observed in the 1975 data of the 34 countries has been extrapolated over time and space to get estimates of GDP for other years and countries. In the absence of detailed price data, the real shares of final expenditures devoted to particular components of the total can only be estimated as the proportion of own currency total expenditure devoted to the components. The observed differences in the pattern of prices of poor countries relative to rich for different components makes this clearly wrong for international comparisons, and in systematic ways. For example, (i) the relative price of services compared with commodities in poor countries is lower than in rich; so the apparent tendency of the share of services to rise as a country's income rises disappears when real quantities are considered; similarly, (ii) the relative price of capital goods is greater in poor countries compared with rich ones, so the difference in investment ratios out of GDP between rich and poor countries is understated.     

Business model schema: business model innovation tool based on direct causal mechanisms of profit

ABSTRACT

Defining business model as the logic/mode/way/framework to seek profit/money and glancing at the evolution of concept business, this paper develops a business model schema (BMS) as a holistic two-dimensions multi-level tool/method for business model innovation (BMI) based on the direct causal mechanisms of profit (DCMP). First, this paper takes DCMP as the logical/theoretical framework by which business model innovation process is identified and specified. And according to that process, it develops a BMS, illustrates an example of BMS to show up its practical usefulness, compares the similarities and differences between BMS and the existing powerful one business model canvas (BMC), and finally asserts that BMS must be a good and useful method in theory and practice because it stands on DCMP that ensures the genuine causality of profit and also it turns out practically useful, recalling the Kurt Lewin’s maxim (1945), “There is nothing so practical as a good theory.     

FISCAL EXPENDITURE AND INDUSTRIAL LAND PRICE IN CHINA: THEORY AND EVIDENCE

This paper aims to discover the mechanism behind the positive correlation between local fiscal expenditure and industrial land price in China, a stylized fact discovered by bivariate and regression analyses. The model shows that if the positive externality of government expenditure on growth is sufficiently high, the local government has an incentive to increase public spending in exchange for the reduced demand for industrial land by charging a higher markup and driving up the industrial land price. Therefore, we observe a positive correlation between the local fiscal expenditure and industrial land price. (JEL D42, H72, R51)     

Rule-based frameworks in historical perspective: Keynes’ and Friedman's monetary policies versus contemporary policy-rules

Abstract

This note suggests that Fazio's re-interpretation of Ferrara's discussion of distribution as a bilateral monopoly is incorrect. A more natural formalization of the work by Ferrara is proposed.     

Choice of currency basket weights and its implications on trade balance

This paper seeks to find an optimal choice of currency basket weights for emerging economies that peg their currencies to a currency basket, and to examine the long-run relationship between the real exchange rates of a group of trading partners. A general equilibrium model is set up to establish an optimal set of currency basket weights, coupled with the choice of fiscal policy, to simultaneously stabilize trade balance and aggregate price level of an economy. This optimal set of weights is a weighted average of two sets of weights; each targets at one policy goal (stabilizing either balance of trade or aggregate price level) at a time. Empirical studies including vector autoregression (VAR) analysis and cointegration analysis on the long-run relationship between the Thai baht and the real exchange rates of its major trading partners are presented.     

Estimated burden of cardiovascular disease and value-based price range for evolocumab in a high-risk,secondary-prevention population in the US payer context

Aim: To estimate real-world cardiovascular disease (CVD) burden and value-based price range of evolocumab for a US-context, high-risk, secondary-prevention population.

Materials and methods: Burden of CVD was assessed using the UK-based Clinical Practice Research Datalink (CPRD) in order to capture complete CV burden including CV mortality. Patients on standard of care (SOC; high-intensity statins) in CPRD were selected based on eligibility criteria of FOURIER, a phase 3 CV outcomes trial of evolocumab, and categorized into four cohorts: high-risk prevalent atherosclerotic CVD (ASCVD) cohort (n?=?1448), acute coronary syndrome (ACS) (n?=?602), ischemic stroke (IS) (n?=?151), and heart failure (HF) (n?=?291) incident cohorts. The value-based price range for evolocumab was assessed using a previously published economic model. The model incorporated CPRD CV event rates and considered CV event reduction rate ratios per 1?mmol/L reduction in low-density lipoprotein-cholesterol (LDL-C) from a meta-analysis of statin trials by the Cholesterol Treatment Trialists Collaboration (CTTC), i.e. CTTC relationship.

Results: Multiple-event rates of composite CV events (ACS, IS, or coronary revascularization) per 100 patient-years were 12.3 for the high-risk prevalent ASCVD cohort, and 25.7, 13.3, and 23.3, respectively, for incident ACS, IS, and HF cohorts. Approximately one-half (42%) of the high-risk ASCVD patients with a new CV event during follow-up had a subsequent CV event. Combining these real-world event rates and the CTTC relationship in the economic model, the value-based price range (credible interval) under a willingness-to-pay threshold of $150,000/quality-adjusted life-year gained for evolocumab was $11,990 ($9,341–$14,833) to $16,856 ($12,903–$20,678) in ASCVD patients with baseline LDL-C levels ≥70?mg/dL and ≥100?mg/dL, respectively.

Conclusion: Real-world CVD burden is substantial. Using the observed CVD burden in CPRD and the CTTC relationship, the cost-effectiveness analysis showed that, accounting for uncertainties, the expected value-based price for evolocumab is higher than its current annual cost, as long as the payer discount off list price is greater than 20%.     

Use values and exchange values in Marx’s extended reproduction schemes

Abstract

Marx-Engels’ numerical illustrations of the extended reproduction suggest that a two-sector economy reaches a balanced growth path, from the second period onwards. We explain this surprising result and show that for technical reasons, disproportions between sectors can prevent the system from reproducing itself. But, in Marx’s reproduction schemes, such a crisis is not only due to purely technical factors and one must wonder what role is played by the relative price in the reproduction of the system. The answer is given by comparing two models having a similar structure but quite different rules for the determination of the relative price. In Marx’s model, the price is given by the labour values and thus, it is exogenously fixed. We contrast Marx’s analysis with an endogenous price model in which the price depends on the conditions of the accumulation of capital. The Appendices point out the complete accordance of Engels’ corrections with Marx’s model and Marx’s unfruitful quest for a balanced growth path as a tool for the analysis of crises.     

‘Our daily bread’: Maurice Potron,from Catholicism to mathematical economics

Abstract

Maurice Potron (1872–1942) is a French Jesuit and mathematician whose main source of inspiration in economics is the encyclical Rerum Novarum. With virtually no knowledge in economic theory, he wrote down a linear model of production in which he formalized the notions of just prices and just wages. As early as 1911, he used the Perron–Frobenius theorem to prove the existence of a positive solution and established a duality result between the quantity side and the price side of the model. He returned to economics in the 1930s, but in both periods he failed to make a lasting impression upon economists.

JEL Classification Code: B3     

Five reasons for the use of network analysis in the history of economics

ABSTRACT

Network analysis is increasingly appreciated as a methodology in the social sciences. In recent years, it is also receiving attention among historians of science. History of economics is no exception in that researchers have begun to use network analysis to study a variety of topics, including collaborations and interactions in scientific communities, the spread of economic theories within and across fields, or the formation of new specialties in the discipline of economics. Against this backdrop, a debate is emerging about how network analysis can help address questions that are pertinent to the history of economics. With this paper, we want to push this debate one step forward by offering and discussing five reasons why network analysis should have a future in the history of economics.     

A cost–utility analysis of degarelix in the treatment of advanced hormone-dependent prostate cancer in the United Kingdom

Objective:

To determine the cost-effectiveness of the treatment of advanced hormone-dependent prostate cancer with degarelix compared to luteinizing hormone-releasing hormone (LHRH) agonists in the UK using the latest available evidence and the model submitted to AWMSG.

Methods:

A cost-effectiveness model was developed from the perspective of the UK National Health Service evaluating monthly injection of degarelix against 3-monthly leuprorelin therapy plus anti-androgen flare cover for the first-line treatment of patients with advanced (locally advanced or metastatic) hormone-dependent prostate cancer. A Markov process model was constructed using the patient population characteristics and efficacy information from the CS21 Phase III clinical trial and associated extension study (CS21A). The intention-to-treat (ITT) population and a high-risk sub-group with a PSA level >20?ng/mL were modeled.

Results:

In the base-case analysis using the patient access scheme (PAS) price, degarelix was dominant compared to leuprorelin with cost savings of £3633 in the ITT population and £4310 in the PSA?>?20?ng/mL sub-group. The chance of being cost-effective was 95% in the ITT population and 96% in the PSA?>?20?ng/mL sub-group at a threshold of £20,000 per quality-adjusted life-year (QALY). In addition, degarelix remained dominant when PSA progression was assumed equal and only the benefits of preventing testosterone flare were taken into account. Treatment with degarelix also remained dominant in both populations when the list price was used. The additional investment required to treat patients with degarelix could be offset in 19 months for the ITT population and 13 months for the PSA?>?20?ng/mL population. The model was most sensitive to the hazard ratio assumed for PSA progression between degarelix and leuprorelin and the quality-of-life (utility) of patients receiving palliative care.

Conclusion:

Degarelix is likely to be cost-effective compared to leuprorelin plus anti-androgen flare cover in the first-line treatment of advanced hormone-dependent prostate cancer.     

The “Treasury View”: An (un-)expected return?

Abstract

By examining the rhetorical use of an old piece of economic theory by some contemporary economists, this paper intends to report on “how today's economists conduct a public policy debate”. This paper is neither a scholarly history of the interwar debate nor a sophisticated critique of current economic policy. It is an attempt to link the policy and theoretical arguments of two similar debates separated by nearly 80 years. The second part of the paper demonstrates that the (un-)expected return of the Treasury View is a case study illustrating two very different modelling strategies.     

Economic burden of hepatitis C-associated diseases: Europe,Asia Pacific,and the Americas

Abstract

Background:

Globally, hepatitis C virus (HCV) infects ～3% of the population. The objective of this study was to review published work and determine the direct medical costs for diseases associated with HCV infection globally, with the exception of the US.

Methods:

A systematic literature search was conducted to identify studies reporting the costs of hepatitis C sequelae between January 1990 and January 2011. Over 400 references were identified, of which 45 were pertinent. The costs were compiled, converted to US dollars, and adjusted to 2010 costs using the medical component of the consumer price index.

Results:

The median cost of liver transplants was estimated at $139,070 ($15,430–$443,700), refractory ascites at $16,740 ($8990–$35,940), hepatocellular carcinoma (HCC) at $15,310 ($3370–$84,710), decompensated cirrhosis at $14,660 ($3810–$48,360), variceal hemorrhage at $12,190 ($3550–$46,120), hepatic encephalopathy at $9180 ($5370–$50,120), diuretic sensitive ascites at $3400 ($1320–$7470), compensated cirrhosis at $820 ($50–$2890), and chronic hepatitis C at $280 ($90–$1860). The variation among studies was mainly due to the methodology used to assess cost, local cost and government reimbursement, and country-specific treatment protocols.

Limitations:

All costs were adjusted to 2010 US dollars using the US medical component of the consumer price index (CPI) which may not reflect the change in medical costs in other countries. In addition, the costs, in the local currency were converted to US dollars in the year of the study. However, medical expenses may not vary with exchange rate, leading to artificial variations. Finally, there was no assessment of the quality of individual studies, which resulted in the same weighting to all studies.

Conclusions:

Hepatitis C imposes a high economic burden globally. Knowing the burden of HCV sequelae is useful for policy decisions as well as serving as a basis for determining the value of HCV screening and treatment.     

Sealed bid auctions with uncertainty averse bidders

Summary. Traditional analysis of auctions assumes that each bidder's beliefs about opponents' valuations are represented by a probability measure. Motivated by experimental findings such as the Ellsberg Paradox, this paper examines the consequences of relaxing this assumption in the first and second price sealed bid auctions with independent private values. The multiple priors model of Gilboa and Schmeidler [Journal of Mathematical Economics, 18 (1989), 141–153] is adopted specifically to represent the bidders' (and the auctioneer's) preferences. The unique equilibrium bidding strategy in the first price auction is derived. Moreover, under an interesting parametric specialization of the model, it is shown that the first price auction Pareto dominates the second price auction. Received: December 15, 1995; revised version: February 19, 1997