Macro-econometric modelling for the Nigerian economy: A growth–poverty gap analysis

This study develops comprehensive full-sector macro-econometric models for the Nigerian economy with the aim of explaining and providing a long-term solution for the persistent growth–poverty divergence experienced by the country. The models are applied to test the hypothesis of existing structural supply-side constraints versus demand-side constraints impeding the economic growth and development of the country. A review of the historical performance of the Nigerian economy reveals significant socio–economic constraints as the predominant impediments to high and sticky levels of poverty in the economy. Thus, a model which is suitable for policy analyses of the Nigerian economy needs to capture the long-run supply-side characteristics of the economy. A price block is incorporated to specify the price adjustment between the production or supply-side sector and real aggregate demand sector. The institutional characteristics with associated policy behaviour are incorporated through a public and monetary sector, whereas the interaction with the rest of the world is represented by a foreign sector, with specific attention being given to the oil sector. The models are estimated with time-series data from 1970 to 2006 using the Engle–Granger two-step co-integration technique, capturing both the long-run and short-run dynamic properties of the economy. The full-sector models are subjected to a series of policy scenarios to evaluate various options for government to improve the productive capacity of the economy, thereby achieving sustained accelerated growth and a reduction in poverty in the Nigerian economy.     

Stock prices,inflation and inflation uncertainty in the U.S.: testing the long-run relationship considering Dow Jones sector indexes

We test for the long-run relationship between stock prices, inflation and its uncertainty for different U.S. sector stock indexes, over the period 2002M7–2015M10. For this purpose we use a cointegration analysis with one structural break to capture the crisis effect, and we assess the inflation uncertainty based on a time-varying unobserved component model. In line with recent empirical studies we discover that in the long run, the inflation and its uncertainty negatively impact the stock prices, opposed to the well-known Fisher effect. In addition we show that for several sector stock indexes the negative effect of inflation and its uncertainty vanishes after the crisis outburst. However, in the short run the results provide evidence in favour of a negative impact of uncertainty, while the inflation has no significant influence on stock prices, except for the consumption indexes. The consideration of business cycle effects confirms our findings, which proves that the results are robust, both for long- and short-run relationships.     

The macroeconomic risks of undesirably low inflation

This paper investigates the macroeconomic risks associated with undesirably low inflation using a medium-sized New Keynesian model. We consider different causes of persistently low inflation, including a downward shift in long-run inflation expectations, a fall in nominal wage growth, and a favorable supply-side shock. We show that the macroeconomic effects of persistently low inflation depend crucially on its underlying cause, as well as on the extent to which monetary policy is constrained by the zero lower bound. Finally, we discuss policy options to mitigate these effects.     

The structuralist theory of imported inflation: an application to South Africa

This study emphasizes the importance of identifying the origin of inflation in the present context of inflation targeting by many emerging market and transition economies. The analysis shows, based on South African data, how structural (supply) and demand inflation can be distinguished. The results indicate that South Africa's inflation experience between 1973q1 and 1998q4 is characterized by two monetary regimes. During the first regime (1973q1–1984q4) the long-run cause of inflation is demand-pull. The second regime (1987q1–1998q4) represents major changes to structural (‘imported’) and cost-push inflation. The two-year period 1985–1986 signifies structural change from the first to the second regime. Moreover, the results in the second regime remain robust when the inflation model is subjected to ‘new’ out-of-sample data until 2001q2. Evidence of structural (‘imported’) inflation in the second regime suggests that inflation should not entirely be squeezed out of the system nor should it necessarily be kept at the lowest possible level, because some inflation may be regarded as the natural by-product of the growth and development process. South Africa's inflation experience points to several lessons for existing (and potential) emerging market and transition economies with some form of inflation targeting.     

Economic growth,structural change,and search unemployment

Economic growth is driven by structural change. Structural change does not come without a cost. The most evident social cost of structural change is high and persistent unemployment. This paper develops a model with an endogenously expanding service sector, where the constant flow of workers in and out of employment leads to structural unemployment. The main finding is that the level of unemployment is different between the initial period and the long-run equilibrium growth path, and that along the transition path, the level of unemployment will overshoot its equilibrium level, which can explain the long-run pattern of unemployment in most industrialized countries.      

Inflation and financial development: Evidence from Brazil

We examine the impact of inflation on financial development in Brazil, and the data available permit us to cover the period between 1985 and 2004. The results—based initially on time series and then on panel time series and panel data and analyses—suggest that inflation presented deleterious effects on financial development during the period investigated here. The main implication of the results is that poor macroeconomic performance has detrimental effects to financial development, a variable that is important for affecting, (e.g., economic growth and income inequality). Therefore, low and stable inflation, and all that it encompasses, is a necessary first step to achieve a deeper and more active financial sector with all its attached benefits.     

Macroeconomic effects of fiscal policy changes: A case of South Africa

This study develops comprehensive full-sector macro-econometric models for the South African economy with the aim of explaining and providing the macroeconomic effects of fiscal policy changes in the country. The models are applied to test the effectiveness of fiscal policy actions in an economic environment with existing structural supply constraints versus demand-side constraints and also to detect which components of the fiscal would be more effective in stabilising the economy. Based on the structure of the South African economy and the framework presented, the study concludes that the South African economy can be characterised as one which is embedded with structural supply constraints. Thus, a model which is suitable for policy analyses of the South African economy needs to capture the long-run supply-side characteristics of the economy. A price block is incorporated to specify the price adjustment between the supply-side sector and real aggregate demand sector. The models are estimated with time-series data from 1970 to 2011, capturing both the long-run and short-run dynamic properties of the economy. The results from the series of fiscal policy scenarios suggest that fiscal policy actions are more effective in an economic environment with limited or no supply constraints. Fiscal expansion or consolidation that comes more from government spending changes will be more effective in an economic environment where structural supply constraints are absent while tax revenue changes will be more effective in an economic environment where there exist major structural supply constraints.     

The role of the financial system in the growth–inflation link: the OECD experience

This paper jointly estimates the effects of financial development and inflation on growth using both cross-section and time-series dimensions of the data on inflation, growth, and some banking and stock market indicators over the period 1961–1993 for a sample of OECD countries. Overall, the results indicate, first, that the long-run costs of inflation are not explained by policies of financial repression and, second, that if inflation affects growth through its interaction with financial market conditions, this is not the only (nor the most important) channel.     

Long-run sectoral development: Time-series evidence for the German economy

In economic development, long-run structural change among the three main sectors of an economy follows a typical pattern with the primary sector (agriculture, mining) first dominating, followed by the secondary sector (manufacturing) and finally by the tertiary sector (services) in terms of employment and value added. We reconsider the verbal theoretical work of Fourastié and build a simple model encompassing its main features, most notably the macroeconomic influences on the sectoral development. Estimation and analysis with German data for the period 1850–2001 show that this model is quite capable of replicating the empirical facts.     

The effects of macroeconomic factors on South African agriculture

Significant research efforts have been devoted to understanding the effects of macroeconomic factors on the agriculture sector. Analysing the sources of volatility in the industry is critical for designing appropriate policies to stabilize agricultural markets, reduce poverty and increase economic growth. Agriculture is a competitive sector with prices that are more flexible than those in nonagricultural sectors. This article uses annual data over the 1957–2004 period and a vector error-correction model in investigating the dynamic effects of exchange rates, money supply and other macroeconomic variables on the agricultural sector in South Africa. Overall, real exchange rates, interest rates, inflation and money supply (M3) shocks have significant and persistent impacts on agricultural output, prices received by farmers and farm input prices. M3 and interest rate shocks tend to put agriculture in a cost-price squeeze. Agricultural price movements are a source of macroeconomic instability in the country. Real exchange rate shocks shift relative prices in favour of agriculture in the long-run, thereby, boosting farm incomes and accelerating poverty reduction in the country.     

Reallocation and restructuring: A generalization of the Balassa–Samuelson effect

Despite its strong theoretical position when it comes to explaining inflation in transition economies, the empirical findings of the Balassa–Samuelson (B–S) effect assign only a minor role to structural inflation – to the disappointment of analysts and policymakers. This article points to 3 theory-based contributing factors to these ‘weak’ findings and offers an alternative methodological approach. First, a short-term focus makes B–S prone to underestimating the magnitude of the productivity growth differential. Second, the conventional demand side CPI based definition of sectoral value added reduces the extent to which the productivity growth differential is passed through to inflation. Third, by ignoring the dependence between the 2 main B–S components, a further downward bias to the productivity growth pass through comes about. The key to our proposed alternative methodology centres on an endogenous relation between the productivity growth differential and sector sizes. Together with the long-run supply-side approach this allows us to capture inflation drivers that conventional B–S fails to incorporate. In our extension to the conventional B–S model a reduced productivity growth differential can be compensated by an increased productivity growth pass-through, or vice versa – with the effect of augmenting inflation pressure. Hence, the link between productivity growth differentials and the dynamics of structural inflation is shown to be more complex than previously assumed.     

Long-run impacts of inflation across sectors in a small sample of countries

This article investigates the long-run effects of inflation on economic output for 10 sectors of the economy, with a sample of 7 countries. The analysis is done using long-run restrictions in a vector autoregression and reports long-run multipliers with bootstrapped confidence bands. The results suggest that some sectors seem to be affected differently than others, as well as significant heterogeneity across countries. The results suggest the strongest effects in the low inflation countries Germany and Japan as has been found in similar studies. In contrast to research using growth regressions, the evidence suggests a positive long-run effect of inflation on output.     

A common trends model of UK core inflation

In this paper the long-run trend in RPI inflation (core inflation) for the UK over the 1961–1997 period is estimated within the framework of a multivariate common trends model which extends the bivariate VAR approach of Quah and Vahey (1995). In this context core inflation is directly linked to money and wage growth and interpreted as the long-run forecast of inflation from a small-scale, cointegrated macroeconomic system. First version received: September 1999/Final version received: October 2001 RID="*" ID="*"  We thank two anonymous referees for many helpful comments and suggestions. Work on this paper was partially conducted when C. Morana was at Heriot-Watt University.     

Inflation Dynamics in India: Relative Role of Structural and Monetary Factors

This paper examines the relative role of structural and monetary factors in the variation of inflation in India over the period 1996–1997:Q1 to 2013–2014:Q4. The paper finds that both the monetary factors and the output gap has significant role. The role of the output gap in inflation is found more prominent than the monetary factors like broad money growth, interest rate and change in exchange rate. The depreciation of exchange rate and broad money growth stimulates inflation where as the interest rate is identified as an anti-inflationary monetary instrument. In view of a comprehensive policy for price stability, it is imperative to know the role of sectoral output gap in inflation. The paper, therefore, enquires the relative role of the primary, secondary and tertiary sector output gap in inflation. Output gap of each of these three sectors provokes inflation where the contribution of tertiary sector output gap is found to be the maximum followed by the primary sector and the secondary sector output gap. The prominent role of the output gap and comparatively passive role of monetary factors does not necessarily imply a non-effective monetary policy but suggests that controlling inflation only through the monetary management may not be effective.

     

STRUCTURAL CHANGE AND NONLINEARITIES IN A PHILLIPS CURVE MODEL FOR SOUTH AFRICA

The main objective of this article is to reexamine the role of the Phillips curve for monetary policy analysis in South Africa by augmenting the model for major structural changes in the balance-of-payments and labor market. The main findings show that a linear Phillips curve with an output gap in levels accurately describes South Africa's nontrended inflation experience during 1971(Q1)–1984(Q4), whereas a piecewise concave curve with an output gap in growth rates correctly predicts the decelerating inflation pattern during 1986(Q1)–2001(Q2). The concave curve after 1985 imparts a deflationary bias that requires expansionary demand-side policies to stabilise the inflation rate. An important corollary is that expansionary demand-side policies can raise the average growth rate of the output gap over time without sacrificing stabilization objectives. (JEL C22, E3, E52 )     

On the upsurge of U.S. food prices revisited

The objective of this study is to empirically examine the effects of changes in exchange rate, commodity price and energy price on five U.S. food prices — cereal/bakery, meats, dairy, fruits/vegetables and beverages. The Johansen cointegration analysis and a vector error-correction (VEC) model are applied to monthly data for the 2001–2010 period. Results show the existence of stable long-run relationships among the selected variables. We also find that energy and commodity prices have influenced U.S. food prices mainly through changes in prices of cereal/bakery, meats and dairy. Finally, exchange rate is found to have been a significant factor influencing U.S. food prices. The Energy Independence and Security Act of 2007 is one of main driving forces for the recent food price inflation, which has affected negatively consumers, especially low income households, in the United States.     

Central Bank's interventions and the Fisher hypothesis: a threshold cointegration investigation

The long-run relationship between nominal interest rates and inflation is examined, allowing for structural breaks and asymmetric mean reversion. From a Threshold AutoRegressive (TAR) test applied to the residuals of the cointegration relationship (while allowing for both a break in the mean of the long-run equation and a smooth regime-transition), there is strong evidence for non-linear mean reversion properties for the real interest rates of the US Treasury Bill market. This suggests asymmetric changes to inflation shocks in the Central Bank's reaction function. The existence of different regimes is consistent with some interpretations of the monetary policies run by the Fed, such as credibility and opportunism.     

部门生产率、汇率与结构性通货膨胀——基于B-S假说的拓展研究

通货膨胀是一国经济高速增长时期频发的经济现象,它的形成有结构性原因。基于B-S(巴拉萨-萨缪尔森)假说构建了新的理论框架分析结构性通货膨胀形成的内在机理,然后利用中国30多年经济发展的相关数据对部门劳动生产率增长差异与通货膨胀之间的关系进行了实证分析。实证分析表明,部门生产率增长差异是通货膨胀形成的重要原因,货币供给量、汇率也是影响我国通货膨胀的重要因素。     

Real wages,inflation and labour productivity in Australia

This article presents an analysis of real wages, inflation and labour productivity interrelationships using cointegration, Granger causality and, most importantly, structural change tests. Applications of tests to Australian data over the 1965 to 2007 period corroborate the presence of a structural break in 1985 and show that a 1% increase in manufacturing sector real wages led to an increase in manufacturing sector productivity of between 0.5% and 0.8%. Comparable estimates for the effect of inflation on manufacturing sector productivity have limited statistical significance. Granger causality test results suggest that real wages and inflation both Granger cause productivity in the long run.