Deflation,Productivity Shocks and Gold: Evidence from the 1880–1914 Period

In this paper we examine the sources and impact of deflation on the growth experiences of the four dominant countries on the gold standard in the period 1880–1913: the United States, The United Kingdom, France and Germany. We distinguish between good deflation, (driven by positive aggregate supply shocks) and bad deflation (driven by aggregate demand shocks). We use an empirical Blanchard/Quah model which decomposes the behaviour of prices, output and the money stock into the impact of shocks such as a world price level shock, a domestic supply shock, and domestic demand shocks including a shock to the domestic gold stock. Our key finding is that the European economies were essentially classic in the sense that output was mainly supply driven and that money was neutral even when country specific gold stocks are included. In the United States, however, we observe both good and bad deflation.     

On the choice of an anchor for the GCC currency: does the symmetry of shocks extend to both the oil and the non-oil sectors?

This paper assesses the costs of forming a monetary union among the Gulf Cooperation Council (GCC) countries by looking at economic linkages within the GCC, and between the GCC and the potential anchors (the US, and major European countries such as France, Germany and Italy) for their proposed new currency. We investigate the importance of the US dollar compared to the Euro by focusing on aggregate demand (AD) and aggregate supply (AS) shock symmetry across these countries. We differentiated between oil and non-oil sector by estimating structural vector autoregression (SVAR) models with a combination of variables: oil output, non-oil output, total output, nominal/real price of oil and overall price level. One set of models was identified with the long-run restrictions of Blanchard and Quah (Am Econ Rev 79(4):655–673, 1989), whereas the set that assesses the robustness of the findings was estimated with the short-run restrictions of Sims (Eur Econ Rev 36(5):975–1000, 1992). We find overwhelming support for AD shock symmetry across the GCC countries and between the GCC and the US, but none for the major European countries with the GCC. Non-oil AS shocks are mostly asymmetric, but oil AS shocks are mostly symmetric when the real price of oil is included. This agrees with the view that GCC countries are subjected to common oil shocks. It also suggests that previous VAR models estimated to pass judgment on the feasibility of monetary union across GCC countries may have suffered from problems of mis-specification if the real price of oil was not considered. We surmise that the US dollar is a better anchor candidate for anchoring the new GCC currency than the Euro, since US monetary policy can at least help smooth demand shocks in these countries.     

Money,inflation, and output growth: Does the aggregate demand-aggregate supply model explain the international evidence?

Money, Inflation, and Output Growth: Does the Aggregate Demand-Aggregate Supply Model Explain the International Evidence? - Using annual post-war data for 32 countries, it is shown that output and the price level are positively related along the aggregate supply and negatively related along the aggregate demand curve. This implies that the negative correlation between inflation and growth simply means that the price level has been countercyclical as aggregate supply shocks domi-nated aggregate demand shocks. It is also shown that money growth has positive and permanent effects on inflation, but may affect output only in the short run: in the long run, money is probably neutral.     

Global food prices and monetary policy in an emerging market economy: The case of India

This paper investigates a perception in the political debates as to what extent poor countries are affected by price movements in the global commodity markets. To test this perception, we use the case of India to establish in a standard SVAR model that global food prices influence aggregate prices and food prices in India. To further analyze these empirical results, we specify a small open economy New-Keynesian model including oil and food prices and estimate it using observed data over the period 1996Q2 to 2013Q2 by applying Bayesian estimation techniques. The results suggest that a big part of the variation in inflation in India is due to cost-push shocks and, mainly during the years 2008 and 2010, also to global food price shocks, after having controlled for exogenous rainfall shocks. We conclude that the inflationary supply shocks (cost-push, oil price, domestic food price and global food price shocks) are important contributors to inflation in India. Since the monetary authority responds to these supply shocks with a higher interest rate which tends to slow growth, this raises concerns about how such output losses can be prevented by reducing exposure to commodity price shocks.     

Openness and the Effects of Fiscal and Monetary Policy Shocks on Real Output in Nigeria (1960–2003)*

Abstract: This study investigates the effects of monetary and fiscal policies on the real output growth in a small open economy. It is a country‐specific, time series study that verifies the implication of increasing economic openness on the efficacy of monetary and fiscal policy. A modified GARCH model was used to estimate the anticipated and unanticipated shocks. Two measures of fiscal and monetary shocks were combined with openness and real oil price shocks in a VECM model to assess the effects of anticipated and unanticipated policy shocks on the output equations. The empirical results showed that anticipated and unanticipated fiscal and monetary shocks had no significant positive effects on real output. This suggests that the open macroeconomic version of the policy ineffectiveness proposition was valid for both monetary and fiscal policy shocks in Nigeria. This is in consonance with earlier works in this area. Furthermore, the degree of openness and oil price shocks had a negative implication on the efficacy of macroeconomic policy in Nigeria; also in agreement with the Dutch Disease Syndrome. Finally, the policy implication of this study therefore is that trade liberalization policy should be implemented cautiously. The Nigerian economy is weak to withstand the unwholesome consequences of full economic integration.     

Effect of Money Supply on Real Output and Price in China

Over the past 30 years, China has achieved remarkable long-term economic growth. Using quarterly data, we study the effects of money supply on real output and inflation in China between 1993 and 2008. To this end, we use money supply shocks afler filtering out the expected component of the money supply. Our findings provide evidence supporting the asymmetric effect of positive and negative money supply shocks on real output and inflation in China. That is, real GDP growth in China responds to negative money supply shocks but not positive money supply shocks. In addition, inflation responds to positive money supply shocks but not negative money supply shocks. We conclude that the People＇s Bank of China＇ s policy of steady monetary growth appears to be appropriate. Our study offers important policy implications for China.     

Variation in the Effects of Aggregate Demand Shocks: Evidence and Implications across Industrial Countries

Over a sample of nineteen industrial countries, more variable aggregate demand and/or higher mean inflation attenuates (augments) the effect of aggregate demand shocks on real output growth (wage and price inflation) while having no effect on the response of the real wage to such shocks. In all countries examined, aggregate demand shocks are positively (negatively) correlated with nominal variables (real output). Among explanations of the business cycle based on shocks to aggregate demand, this evidence favors the new Keynesian sticky wage explanation over the sticky price and the new classical imperfect information explanations.     

Energy price shocks,monetary policy and China's economic fluctuations

This paper develops a New Keynesian dynamic stochastic general equilibrium model with energy factors to study various channels through which China's economic fluctuations are linked to energy price shocks and to search for the optimal monetary policy to cope with energy price shocks. We conclude that there are channels through which changes in energy prices will have the following cause–effect relationships. First, a rise in energy price as a negative technology shock will raise the costs of providing capital services per unit of capital, thereby reducing output. Second, a rising energy price distorts the intertemporal choices of households and firms, creating downward pressure on the expected future return on capital. Third, an energy price shock places upward pressure on the marginal costs associated with an increase in inflation. Numerical simulation results show that a positive energy price shock has a positive effect on energy technology improvements. In addition, the effects of energy price shocks can be mitigated by nominal rigidities, and interest rate rules will determine the magnitude of those effects. Using the efficient frontier method, we also show that optimal monetary policy in China should help control energy price volatility.     

Transmission of China's Shocks to the BRIS Countries

This paper investigates the effects of China on the BRIS countries, namely Brazil, Russia, India and South Africa. We identify Chinese supply and demand shocks and assess their transmission to BRIS in a structural dynamic factor model framework estimated over the period 1995Q2‐2009Q4. The findings show that Chinese supply shocks are more important than its demand shocks. Supply shocks produce positive and significant output responses in all BRIS countries. And while these supply shocks have a permanent impact on the BRIS countries, the effects of demand shocks are short‐lived. Both supply and demand shocks are transmitted through trade rather than financial linkages. However, the responses of the BRIS countries are heterogeneous and therefore require country‐specific policy responses.     

In search of the Phillips curve for India

The economics literature suggests that the Phillips curve is nonexistent in India. This study finds that supply shocks, namely droughts and oil crises, and the liberalization-policy shock of the early 1990s are the main reasons for the absence of the Phillips curve in India. Once I account for these shocks by reconstructing the data of inflation and the output gap in crop year instead of fiscal year, and move to the industrial sector, the Phillips curve emerges in the conventional fashion. Thus, the short-run tradeoff between inflation and industrial output is still possible in India, as it is in other developed economies.     

Revisiting the empirical existence of the Phillips curve for India

This paper revisits the empirical existence of the Phillips curve in the Indian context. To estimate the Phillips curve we need two variables: inflation and the output gap. In the case of India, incorrect measurement of both variables causes much difficulty in estimating the Phillips curve. We use a non-linear Kalman filter approach to estimate the output gap and find that the Kalman filter estimate captures all the dynamics of the economy. Our results show that after taking supply shocks into consideration, there is clear evidence as to the existence of the Phillips curve in India for recent years.     

Environmental consequences of fuel price shocks in China

This study investigates the environmental consequences of fuel price shocks, using a rich dataset from the Chinese megacity of Hangzhou. Our identification strategy is mainly aided by instrumenting fuel price using exogenous global oil prices. We find that a 10% increase in fuel price leads to a 10.29%–11.45% decrease in driving demand, reflected by road congestion index, and a 17.6%–20.27% decrease in industrial activities, measured by electricity consumption. The decreases in driving demand and industrial activities are indeed correlated with air quality improvement and decline in major pollutant concentrations. While the findings shed light on the short-term environmental outcomes of price-based measures, the negative effects of fuel price increases on industrial activities may generate undesirable impacts on macroeconomy in the long-term perspective. Despite ample evidence demonstrating that drivers respond to fuel price changes, considerably fewer studies investigate their environmental and economic consequences. This study addresses this gap in the literature and contributes to a better understanding of the effects of fuel price shocks on air pollution and economic activities.     

Inflation in South Africa: An Assessment of Alternative Inflation Models

We consider the relative empirical performance of a range of inflation models for South Africa. Model coverage is of Phillips curve, New Keynesian Phillips curve, monetarist and structural models of inflation. Our core findings are that the single most robust covariate of inflation is unit labour cost. We further decompose unit labour cost into changes in the nominal wage and real labour productivity. The principal association is a strong positive relationship between inflation and nominal wages, while improvements in real labour productivity report only a relatively weak negative association with inflation. Supply‐side shocks also consistently report an association with inflation. As to demand‐side shocks, the output gap does not return a robust statistical association with inflation. Instead, it is growth in the money supply and government expenditure which return robust and theoretically consistent associations with inflationary pressure.     

全球化、全球产出缺口与国内的通货变动

本文运用开放条件下的菲利普斯曲线模型对美国、日本、欧元区和中国四个样本国家进行实证检验,考察了全球化下国内通货变动的影响因素,探讨了全球化对国内通货变动的影响渠道。结果发现,"全球产出缺口假说"在各国基本成立。工业化国家全球产出缺口对国内通货变动的影响程度明显高于中国,原油和食品等初级产品的价格对国内物价的影响也更为显著。对待全球化背景下中国的通货变动,不仅要分析国内宏观经济均衡与波动周期,更要关注国际市场的外部冲击。国内政策工具的使用要根据国内国际经济周期的变化准确把握时机和力度,同时还要加强与其他国家的经济合作与政策协调。     

Dry bulk shipping and the evolution of maritime transport costs, 1850–2020

We provide evidence on the dynamic effects of fuel price shocks, shipping demand shocks and shipping supply shocks on real dry bulk freight rates in the long run. We first analyse a new dataset on dry bulk freight rates for the period from 1850 to 2020, finding that they followed a downward but undulating path with a cumulative decline of 79%. Next, we turn to understanding the drivers of booms and busts in the dry bulk shipping industry, finding that shipping demand shocks strongly dominate all others as drivers of real dry bulk freight rates in the long run. Furthermore, while shipping demand shocks have increased in importance over time, shipping supply shocks in particular have become less relevant.     

External shocks and Japanese business cycles: Evidence from a sign-restricted VAR model

This study investigates the sources of Japanese business fluctuations since the 1990s, taking into account both external shocks (e.g., risk premium and foreign demand shocks) and domestic supply and demand shocks. We use the sign-restricted VAR model based on the theoretical model to identify these shocks. The presented results show that approximately 30–50% of the forecast error variances in output can be explained by external shocks. Further, we demonstrate that supply shock is the main influencing factor in Japanese business fluctuations throughout the sample period and that the role of external shocks has been growing in the post-Lehman period, including the effect of the Great East Japan Earthquake.     

Good deflation/bad deflation and Japanese economic recovery

Many economists dismiss the role of positive supply shocks as a cause of Japan’s deflation. Indeed, they sometimes attribute the long delay in Japan’s recovery to the mistaken view that Japan’s deflation reflects an acceleration of technological progress. Whatever the current situation in Japan, however, economic history certainly suggests that technological progress can go hand in hand with general deflation. Conducting a VAR analysis using very detailed information about the components of Japan’s consumer price index, this paper finds that short-run shocks to Japan’s relative price structure persist in the long run. Given this finding, it is possible to conclude that such shocks are real in origin and reflect technological change. As no effort has yet been completed to show the full extent to which technological change is driving short-run relative price change in Japan compared with other factors, and the full extent to which relative price changes are driving aggregate price change compared with other factors, the policy implications of these findings are unclear. What is clear is that it is a mistake to dismiss out of hand the possibility that technological shocks are playing an important role among other forces in Japan’s current deflation.     

Is U.S. money causing China's output?

This paper tries to answer the long-standing question of whether money causes output. Instead of focusing on domestic monetary policy and output, we analyze U.S. monetary policy and its possible effects on real output in China. Our results indicate that the main monetary instrument in the U.S., the Federal Fund Rate, Granger causes China's output. A second monetary variable, U.S. money supply, does not seem to have a significant effect on China's output. The results are supported by variance decompositions, which indicate that Federal Fund Rate shocks have an effect on China's real output. The findings have important implications for policy makers in China that focus on maintaining a high and stable economic growth.     

Oil Price Shocks and the Credit Default Swap Market

We investigate the impact of supply and demand shocks in the global crude oil market on the CDX spread, in the context of a structural VAR model based on monthly data, over the period from November 2003 to October 2015. We find that the reaction of the CDX spread to changes in the real price of crude oil differs considerably depending on the sources of shocks. In the long run, crude oil supply shocks, aggregate demand shocks, and oil-specific demand shocks together account for nearly 90% of the variation of the CDX spread.     

Global commodity prices and global stock market volatility shocks: Effects across countries

We investigate the time-varying dynamics of global stock market volatility, commodity prices, domestic output and consumer prices. We find (i) stock market volatility and commodity price shocks impact each other and the economy in a gradual and endogenous adjustment process, (ii) impact of commodity price shock on global stock market volatility is significant during global financial crises, (iii) effects of global stock market volatility on the US output are amplified by endogenous commodity price responses, (iv) effects of global stock market volatility shocks on the economy are heterogeneous across nations and relatively larger in twelve developed countries, (v) four developing/small economies are more vulnerable to commodity price shocks.