The inflationary experiences of six developing countries in Asia: an investigation of underlying determinants

This paper investigates major deteminats of the inflation rate in six Asian developing countries. The sample includes low and moderate-high inflation cases. For the investigation a monetarist model of the inflation rate adjusted to account for important external factors is used. The results show that the growth of the money stock was not a primary source of inflation in all countries. However, various factors that influence the public's willingness to hold money are behind inflationary pressures across countries. Among these, some are external factors stemming from changes in foreign interst rates and import prices. Overall, the evidence suggests that the success of domestic policy in fighting inflation is highly dependent on the unique inflationary experience of each country.     

外汇占款与通货膨胀率关系研究

基于货币数量理论研究外汇占款对通货膨胀的影响有重大意义。首先采用VAR模型和Granger因果关系模型研究外汇占款、货币供应量和通货膨胀率之间的相互影响状况,同时运用脉冲响应模型和方差分解技术研究变量受系统内变量冲击的反应和波动情况。其次进行货币冲销有效性检验,结果显示:央行的货币冲销政策完全有效,货币冲销力度大约为-0.6,货币冲销弹性大于1,从整体来看,货币冲销有效性呈现弱递减趋势。     

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.     

Price and liquidity puzzles of a monetary shock: Evidence from indebted African economies

Price and liquidity puzzles have been identified as two major counterintuitive findings arising from monetary shocks. We investigate their presence in eleven African countries, using a dynamic stochastic general equilibrium model designed for indebted small open-economies. Our simulations reveal that the majority of African countries report a price puzzle whereas only three countries exhibit liquidity effect. In many of the sampled countries, a positive money growth shock drives interest rates up, but consumption and output fall in contrast to the conventional view. External debt increases in response to money growth shock, exchange rate appreciates and inflation falls. Money growth shocks are transmitted to the economy through the exchange rate channel when uncovered interest rate parity condition holds. Our findings therefore appear to suggest that monetary policy in Africa should prioritize foreign debt stabilization by reacting more to output gap than to inflation.     

Inflation,money, interest rate,exchange rate,and casuality: the case of Egypt,Morocco, and Tunisia

This study provides further evidence of the inflationary efects of the rates of growth of money supply, gross domestic product, efective exchange rate, and imported inflation for Egypt, Morocco, and Tunisia using quarterly data from 1964 to 1990. In addition, it examines the Granger causality between inflation and money supply as well as between inflation and the real exchange rate in the countries under consideration. Most of the results are consistent with extant theory and empirical evidence.     

Fixed exchange rates,independent central banks and price stability in postcommunist countries: Conservatism and credibility

Central bank independence (CBI) and fixed exchange rates are used by governments to achieve stable prices. This article analyzes the mechanisms through which the two monetary institutions could work: Indirectly via a disciplinary effect on money growth rates or via an additional credibility effect on inflation expectations and the cost of capital. I further explain how both discipline and credibility are affected by the distinct flaws of independent central banks and fixed exchange rates: central banks lack transparency and fixed exchange rates take many shapes and are routinely devalued. The argument is tested with quarterly data from postcommunist countries for years 1991 to 2007. The findings show a strong disciplinary effect of monetary institutions on rates of M2 change and an effect on inflation controlling for money growth, but credibility does not extend to lower real short‐term market interest rates. Political institutions do condition the effect of central bank independence, while the types of fixed exchange rates affect money growth rates and inflation to different degrees.     

The demand for money and the real exchange rate misalignments in emerging European countries: A nonlinear approach

This paper investigates the extent to which domestic and foreign money balances in emerging European countries are influenced by foreign exchange considerations. A well-specified and stable relationship between real money demand and the exchange rate can be perceived as an important part of a successful monetary policy. This study examines the long-run determinants of real exchange rates (RERs) associated with the behavioral equilibrium exchange rate (BEER) approach and identifies currency misalignments in these countries. The misalignment is later used to test the nonlinear behavior of the demand for money. The results indicate that the RER misalignments have a significant impact on domestic money demand. When the currencies are overvalued, there is a reduction in domestic money demand, and when they are undervalued, there is an increase in domestic money demand. Furthermore, it can be concluded that overvaluation causes an increase in foreign money demand indicating a shift of preference from domestic to foreign currency.     

MONETARY POLICY ACTIVISM UNDER MANAGED-FLOATING EXCHANGE RATES: A CROSS-COUNTRY COMPARISON

This paper assesses the degree and pattern of monetary policy activism in the United States, Canada, West Germany, the United Kingdom, and Japan during the recent period in which managed-floating exchange rates prevailed. Floating exchange rates enhance the potency of a discretionary monetary policy. Yet central banks in these countries shifted toward less discretionary monetary targeting during the late 1970s in response to rising inflationary pressures and expectations. But whether such targeting actually reduced policy activism is unclear since targets were expressed in wide ranges and often were missed. Following 1981, at least three of these countries–the United States, Canada, and the United Kingdom–reverted to an avowedly more discretionary pattern of response to changes in real demand pressures, interest rates, and exchange rates. Since mid-1986, Germany, the United Kingdom, and Japan–and, to a lesser extent, Canada–have intervened heavily in the foreign exchange market and so have greatly increased their official dollar holdings. Moreover, through August 1987, the effects of this intervention on these countries' domestic money supplies apparently have been sterilized only partially.     

Time-inconsistency and expansionary business cycle theories: What does matter for the central bank independence–inflation relationship?

Since the seminal paper of Kydland and Prescott (1977), a central bank’s independence (CBI) has been considered an important institutional condition for achieving lower inflation. Recently, however, this long-held belief has been challenged. This paper investigates the relationship between CBI and inflation for a large sample (91 countries) covering the period from 1990 to 2014. We follow the previous literature by considering differences across national monetary regimes in explaining this relationship. Our approach also traces the sources of the inflationary phenomenon. Using panel data and the turnover indicator as a proxy for CBI, we offer two main findings. First, we identify the role of exchange rate regimes in the dynamic between inflation and CBI. Second, our results show that only intermediate and flexible exchange rate regimes are appropriate in this relationship. This finding is explained by the level of CBI, which is very low for countries with a fixed exchange rate policy and low income levels. For policymakers, our results highlight the importance of the choice of monetary regime in controlling inflation in the presence of CBI. For public agents, our results provide guidelines for formulating expectations.     

The vanishing role of money in the macro-economy: An empirical investigation for India

The recent de-emphasizing of the role of “money” in both theoretical macroeconomics as well as in the practical conduct of monetary policy sits uneasily with the idea that inflation is a monetary phenomenon. Empirical evidence has, however, been accumulating pointing to an important leading indicator role for money and credit aggregates with respect to long term inflationary trends. Such a role could arise from monetary aggregates furnishing a nominal anchor for inflationary expectations, from their influence on the term structure of interest rates and from their affecting transaction costs in markets. Our paper attempts to assess the informational content role of money in the Indian economy by a separation of these effects across time scales and frequency bands, using the techniques of wavelet analysis and band spectral analysis respectively. Our results indicate variability of causal relations across frequency ranges and time scales, as also occasional causal reversals.     

Commodity Prices and the Dynamics of Inflation in Commodity‐Exporting Nations: Evidence from Australia and Canada*

A commodity‐price boom is under way. What does this boom mean for inflation in countries with substantial net commodity exports? The answer depends on movements in commodity prices, changes in foreign exchange rates and the determinants of domestic price inflation. We estimate equations to provide indications of the strength of each of these forces for both Australia and Canada. The results show that world commodity prices move pro‐cyclically with world industrial production and that rates of change in commodity prices are directly related to domestic inflation in both countries. However, there is an offsetting impact of exchange‐rate changes, which is strong enough in the case of Australia, but not Canada, to substantially eliminate the inflationary impact of a commodity‐price boom.     

Inflation dynamics in a small emerging market

This study investigates the determinants of inflation in the Dominican Republic during 1991 to 2002, a period characterized by remarkable macroeconomic stability and growth. By developing a parsimonious and empirically stable error correction model using quarterly observations, the study finds that inflation is explained by changes in monetary aggregates, real output, foreign inflation and the exchange rate. Long-run relationships in the money and traded goods markets are found to exist, but only the disequilibrium from the money market exerts a significant impact on inflation.     

通货膨胀目标制度在我国实施的可行性分析

20世纪90年代以来,由于通货膨胀目标制(Inflation Targeting,以下又简称通胀目标制)被越来越多的国家采用,使得通胀目标制成为近年西方货币经济学领域最热门的研究课题之一。从传统的以控制货币供应量为主的货币目标法(Monetary'Targeting)和以稳定汇率为主的汇率目标法(Exchange rate Targeting)到明确公布通货膨胀目标的通胀目标制是一个货币政策方面的重大转变。本文主要分析了我国实施通胀目标制的可行性,并提供相关的政策建议。     

中国货币供给与通货膨胀的关联性研究

关于货币供给与通货膨胀的关联性,学者们还没有形成一致的看法.理论上,货币供给与通货膨胀具有一定的关联性.通货膨胀有需求拉动型和成本推动型,在通货膨胀的原因中有“货币因素”,也有“非货币因素”.实证检验表明:中国货币供应量与物价指数不存在长期的稳定均衡关系,但货币供应量是物价指数的格兰杰原因,反之则不然.事实上,中国通货膨胀或通货膨胀压力一方面是与货币供给有关,另一方面还与结构性因素有关.因此,要实现中国经济的低通胀运行:一是实行总量均衡和结构合理的货币供给模式;二是采取更有效的货币政策;三是推进经济结构调整,实现国际收支平衡;四是深化金融体系改革,增强中央银行货币控制能力;五是进行汇率机制改革;六是通过财政政策调整供需结构.     

Exchange rate,price, and output inter-relationships in Ghana: evidence from vector autoregressions

This paper explores the dynamic inter-relationships among the currency exchange rate, consumer price inflation, and real output growth, as well as the roles of money and interest rates in output and price determination. Time series data and vector autoregression models are used. Results suggest that there are significant inter-relationships between the exchange rate and inflation, monetary shocks matter only when explaining money itself and the price level, and interest rate-dependent monetary policies in the absence of financial modernization are ineffective     

How justified is abandoning money in the conduct of monetary policy in Australia on the grounds of instability in the money‐demand function?

The role of money in the design and conduct of monetary policy has reemerged as an important issue in both advanced and developing economies, especially since the 2007 global financial crisis. A growing body of recent literature suggests that the causal relationship between money supply growth and inflation remains intact across countries and over time and that this relation is not conditional on the stability of the money‐demand function or whether money is endogenous or exogenous. Moreover, critical for a rule‐based monetary policy is the presence of a long‐run stable money‐demand function, rather than a short‐run money‐demand model that may exhibit instability for many reasons, including problems with estimating a money‐demand model with high‐frequency data. Provided that a stable money‐demand function exists, it could be useful to establish long‐run equilibrium relations among money, output, prices, and exchange rates, as the classical monetary theory suggests. Within this analytical framework, this paper addresses the question of whether money has any role in the conduct of monetary policy in Australia. The conventional wisdom is that the money‐demand function in Australia has been unstable since the mid‐1980s due to financial deregulation and reforms; this led to a change in the strategy of monetary policy for price stability in the form of inflation targeting that ignores money insofar as inflation and its control are concerned. This paper reports empirical findings for Australia, obtained from a longer quarterly data series over the period 1960Q1–2015Q1, which suggest that instability in the narrow‐money‐demand function in Australia was primarily due to the exclusion of variables which have become important in the deregulated environment since the 1980s. These findings are confirmed by an expanded form of the narrow‐money‐demand function that was found stable over the past two decades, although it experienced multiple structural breaks over the study period. The paper draws the conclusion that abandoning the monetary aggregate as an instrument of monetary policy in Australia, under a rule‐based monetary policy such as inflation targeting, cannot be justified by instability in the money‐demand function or even by lack of a causal link between money supply growth and inflation.     

Stability of Money Demand and Monetary Policy in Papua New Guinea (PNG): An Error Correction Model Analysis

An error correction model (ECM) is used to study the Properties of money demand and to evaluate the appropriate monetary policy in PNG. The study confirms that the determinats of money demand are real GDP, nominal interest and inflation rate. The income elasticity of money demand is very low. The demand for money in PNG was stable during 1979-95, suggesting that the monetary targeting regime by the PNG Central Bank is feasible. However, as PNG proceeds with economic reforms that Includes financial sector reform and a floating exchange rate regime, the stability of the demand for money may have to be re-examined periodically. The best approach for conducting the monetary policy in PNG is to target the inflation rate. [E41, E52, C22]     

Liquidity risk, economic development, and the effects of monetary policy

Empirical evidence indicates that monetary policy is not super-neutral in many countries. In particular, in high inflation economies, inflation is negatively related to economic activity. By comparison, inflation may be positively correlated with output in low inflation countries. We present a neoclassical growth model with money in which the incidence of liquidity risk is inversely related to aggregate capital formation. Interestingly, there may be multiple monetary steady-states where the effects of monetary policy vary. In poor economies, the financial system is highly distorted and higher rates of money growth are associated with less capital formation. In contrast, in advanced economies, a Tobin effect is observed. Since inflation exacerbates distortions from a coordination failure in the low-capital steady-state, individuals become much more exposed to liquidity risk. Consequently, optimal monetary policy depends on the level of development.     

Inflation Tax and Substitution Between Domestic and Foreign Assets: Evidence from Central-Eastern Europe

Dominant factors in determining real money holdings in Poland, Hungary, and Slovenia during a transition period characterized by high inflation are analyzed. Two hypotheses are tested. Cagan's model suggests that inflation-adjusted money balances are influenced almost exclusively by inflationary expectations. A competing model suggests that under highly inflationary conditions there is an incentive for agents to substitute foreign for domestic assets in their portfolios because of the higher expected return. Inflation expectation is a dominant factor in Poland. The expected return to holding foreign assets dominates in Hungary. Both factors have played important roles in Slovenia.     

温和通货膨胀下的货币政策选择

2003年以来,我国摆脱了通货紧缩的阴影,进入了一个温和的通货膨胀时期.这一轮温和的通货膨胀主要源于货币信贷的过快增长,而基础货币投放过多主要源于外汇占款的快速增长.实证研究表明,我国通货膨胀率与M0、M1、M2以及贷款增长率之间都存在正相关关系.缓解和释放通货膨胀压力既需要运用数量型货币政策工具,更需要运用价格型货币政策工具.为了缓解通货膨胀压力,中国人民银行应该实行"双升"的货币政策,在调升人民币利率水平的同时调整人民币汇率,既升息又升值,但升息和升值的幅度不宜过大.