DSGE model-based forecasting of modelled and nonmodelled inflation variables in South Africa

Inflation forecasts are a key ingredient for monetary policy-making – especially in an inflation targeting country such as South Africa. Generally, a typical Dynamic Stochastic General Equilibrium (DSGE) only includes a core set of variables. As such, other variables, for example alternative measures of inflation that might be of interest to policy-makers, do not feature in the model. Given this, we implement a closed-economy New Keynesian DSGE model-based procedure which includes variables that do not explicitly appear in the model. We estimate such a model using an in-sample covering 1971Q2 to 1999Q4 and generate recursive forecasts over 2000Q1 to 2011Q4. The hybrid DSGE performs extremely well in forecasting inflation variables (both core and nonmodelled) in comparison with forecasts reported by other models such as AR(1). In addition, based on ex-ante forecasts over the period 2012Q1–2013Q4, we find that the DSGE model performs better than the AR(1) counterpart in forecasting actual GDP deflator inflation.     

Factors influencing ‘missing girls’ in South Korea

Despite the massive attention drawn to ‘missing girls,’ there has been no study that specifically focuses on the association between childlessness and the daughter deficit. Using a bivariate probit selection model, this article analysed the data for 6475 married women aged 15–49 years collected from the 2003 Korea National Fertility and Family Health Survey. The results showed that a couple's decision to have a child exerted a significant influence on its daughter deficit. This study also found that the effect of a woman's education on daughter deficit did not correspond to that of her husband's level of education. Additionally, a prediction was made that if a one child family norm were prevailing in South Korea, the probability of a couple's having a daughter deficit would increase by as much as 63.9%.     

Divisional Informativeness Gap and Value Creation from Asset Sales

Nanda and Narayanan (1999) show that the information asymmetry between the managers and market participants regarding divisional cash flows helps explain the value creation on asset sales. Based on their theoretical framework, the divisional informativeness gap hypothesis predicts that the announcement‐period return increases with the difference in cash‐flow informativeness of retained and divested divisions prior to the divestiture. Our results, using industry‐average earnings response coefficient as a proxy for cash‐flow informativeness of a division, support this prediction. The effect is stronger when a conglomerate retains the division with relatively greater growth opportunities.     

Capital Inflows and House Prices: Aggregate and Regional Evidence from China

Rising house prices in China have been of concern for investors and policymakers. Prices have risen substantially in the last decade, especially in large urban cities, and some economists have expressed concerns about the affordability of residential housing for young adults. This phenomenon becomes a major concern for policymakers, in terms of managing policies to balance the residential needs of individuals and the transition to a market economy. Theoretically, house prices ought to be linked to economic factors such as disposable income, availability of land to build and credit policy. However, it appears that traditional economic theories fail to appropriately explain house prices in China. We provide an explanation from the perspective of capital inflows into China. In terms of per capita remittances, China receives the highest inflow of foreign capital, and this may have a significant impact on risk adjusted returns in the Chinese market. To investigate this relationship, we use the vector error correction model to assess the impact of capital inflows on house prices. We find that capital inflows have a significant positive effect on house prices. The study makes important contributions to understanding the relationship between house prices and foreign remittances after controlling for other economic factors. China is a large economy. Because the impact of economic development in China has not been consistent across the country, we address the regional differences in the house price changes to capital inflows. Using regional data, we show that capital inflows have an asymmetric effect on the housing market across different provinces and cities of China. This has important implications for the development of economic policies in China that aim to provide fair access to residential housing for everyone. These findings are also relevant to investors in the housing market, whether investing for a personal residential home or as part of their diversified investment portfolio. It will also be informative to see how a reversal of capital inflows associated with tighter financing conditions in advanced countries will affect house prices in China.     

Role of monetary policy in a New Keynesian economy: a note from a laboratory experiment

This paper discusses an experimental study on the role of monetary policy within a New Keynesian macroeconomic framework. The novelty of this article is that each subject was asked to forecast both the inflation rate and output gap at the same time one period ahead, which is an improvement over the existing literature. We find that if both the expected inflation rate and expected output gap is incorporated in the monetary policy rule then inflation can be anchored and stabilized more efficiently.     

Reconsidering the welfare cost of inflation in the US: a nonparametric estimation of the nonlinear long-run money-demand equation using projection pursuit regressions

This paper, first, estimates the appropriate, log–log or semi-log, linear long-run money-demand relationship capturing the behavior US money demand over the period of 1980:Q1–2010:Q4, using the standard linear cointegration procedures found in the literature, and the corresponding nonparametric version of the same based on projection pursuit regression (PPR) methods. We then, compare the resulting welfare costs of inflation obtained from the linear and nonlinear money-demand cointegrating equations. We make the following observations: (i) the appropriate money-demand relationship for the period of 1980:Q1–2010:Q4 is captured by a semi-log function; (ii) based on the estimation of semi-log cointegrating equations, the welfare cost of inflation was found to at the most lie between 0.0131 % of GDP and 0.2186 % of GDP for inflation rates between 0 and 10 %, and; (iii) in comparison, the welfare cost of inflation obtained from the semi-log non-linear long-run money-demand function, derived using the PPR method, for 0–10 % of inflation ranges between 0.4930 and 1.9468 % of GDP. However, the standard errors associated with the welfare cost estimates obtained from PPR relative to the linear models tend to indicate that the nonlinear money demand provides more precise estimates of the welfare costs primarily for higher rates of inflation.     

Modeling Spatial Patchiness and Hot Spots in Stated Preference Willingness to Pay

Stated preference analyses often impose strong assumptions regarding spatial welfare distributions that can influence the validity of welfare analysis and aggregation. These include spatial homogeneity and continuous distance decay. Global assumptions such as these are increasingly questioned by non-economics disciplines in favor of approaches that allow for local patchiness. Drawing from this literature, this article proposes methods to identify and evaluate hot spots in stated preference welfare estimates using local indicators of spatial association. Methods are illustrated using geocoded choice experiment data addressing river restoration. Results suggest the presence of statistically significant, non-continuous patterns overlooked by current approaches.