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121. A State-Dependent Model for Inflation Forecasting

Author:
Andrea Stella and James H. Stock
Publication Date:
11-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We develop a parsimonious bivariate model of inflation and unemployment that allows for persistent variation in trend inflation and in the non-accelerating inflation rate of unemployment. The model, which consists of five unobserved components including the trends) with stochastic volatility, implies a time-varying vector autoregression model for changes in the rates of inflation and unemployment. The implied backwards-looking Phillips curve has a time-varying slope that is steeper in the 1970s than in the 1990s. Pseudo out-of-sample forecasting experiments indicate improvements upon univariate benchmarks. Since 2008, the implied Phillips curve has become steeper and the the non-accelerating inflation rate of unemployment has increased.
Topic:
Development, Labor Issues, Inflation, State Building, and Unemployment
Political Geography:
Global Focus

122. The new old choice for economic policymakers in Belarus

Author:
Alexander Chubrik
Publication Date:
04-2012
Content Type:
Policy Brief
Institution:
Center for Social and Economic Research - CASE
Abstract:
In 2011, the Belarusian ruble lost nearly 2/3 of its value. In December, the inflation rate approached 110% yoy. At the same time, the economy grew by 5.3% that year and continued with 3.6% yoy growth in January 2012. Is this a sign of economic recovery? Will it turn into sustainable growth? Or has the country exited from the crisis at all? To address these questions, CASE Fellow and Director of the IPM Research Centre in Minsk Alexander Chubrik looks at the roots of the 2011 crisis and compares them with the features of the long-lasting period of economic growth in Belarus.
Topic:
Globalization, Economic Growth, Inflation, Trade, and Economic Integration
Political Geography:
Eastern Europe and Belarus

123. Economic Consequence of War on the US Economy

Author:
Institute for Economics and Peace (IEP)
Publication Date:
02-2012
Content Type:
Special Report
Institution:
Institute for Economics & Peace (IEP)
Abstract:
An overview of the macroeconomic effects of government spending on war and the military since World War II. It specifically examines five periods: World War II, the Korean War, the Vietnam War, and the Iraq/Afghanistan Wars, summarizing the effect of financing the wars on consumption, investment, taxes, government deficits and inflation.
Topic:
Economics, War, History, Tax Systems, Inflation, World War II, Macroeconomics, Vietnam War, and Korean War
Political Geography:
Global Focus

124. The Effects of Oil Price Hikes on Economic Activity and Inflation

Publication Date:
03-2011
Content Type:
Policy Brief
Institution:
The Organisation for Economic Co-operation and Development
Abstract:
Rising energy prices stemming from turbulence across N. Africa and the Middle East will only have a modest impact on GDP and inflation in the near term, according to a new OECD report.
Topic:
Energy Policy, International Trade and Finance, Oil, Natural Resources, Economic Growth, and Inflation
Political Geography:
Africa and Middle East

125. Inflationary memory as restrictive factor of the impact of the public expense in the economic growth: lessons from high inflation Latin American countries using an innovative inflationary memory indicator

Author:
Ernesto Sheriff
Publication Date:
08-2010
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
A new inflationary memory indicator was developed and applied here. A panel was built with the selected countries considering the economic growth as dependent variable in function of the convergence hypothesis, the inflation rate, the public expense and, the recursive variance of the inflation (VARINF) as inflationary memory indicator. The expected results of the panel were that the inflation and their variability affect the growth negatively neutralizing the possible effects that it could have the public expense on the same one. Five Latin American countries with experiences of high inflation were included (Argentina, Brazil, Bolivia, Peru and Nicaragua).
Topic:
Economy, Economic Growth, Inflation, and Public Spending
Political Geography:
Brazil, Argentina, Latin America, Nicaragua, Peru, and Bolivia

126. Currency Crashes in Industrial Countries: Much Ado About Nothing?

Author:
Joseph Gagnon
Publication Date:
02-2009
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Sharp exchange rate depreciations, or currency crashes, are associated with poor economic outcomes in industrial countries only when they are caused by inflationary macroeconomic policies. Moreover, the poor outcomes are attributable to inflationary policies in general and not the currency crashes in particular. On the other hand, crashes caused by rising unemployment or external deficits have always had good economic consequences with stable or falling inflation rates.
Topic:
Economics, Exchange Rate Policy, Inflation, and Currency
Political Geography:
Global Focus

127. Optimal Monetary Policy with Distinct Core and Headline Inflation Rates

Author:
Martin Bodenstein, Christopher J. Erceg, and Luca Guerrieri
Publication Date:
08-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In a stylized DSGE model with an energy sector, the optimal policy response to an adverse energy supply shock implies a rise in core inflation, a larger rise in headline inflation, and a decline in wage inflation. The optimal policy is well-approximated by policies that stabilize the output gap, but also by a wide array of “dual mandate” policies that are not overly aggressive in stabilizing core inflation. Finally, policies that react to a forecast of headline inflation following a temporary energy shock imply markedly different effects than policies that react to a forecast of core, with the former inducing greater volatility in core inflation and the output gap.
Topic:
Economics, Energy Policy, Inflation, and Supply
Political Geography:
Global Focus

128. Constructive Data Mining: Modeling Argentine Broad Money Demand

Author:
Neil R. Ericsson and Steven B. Kamin
Publication Date:
09-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
his paper assesses the empirical merits of PcGets and Autometrics–two recent algorithms for computer-automated model selection–using them to improve upon Kamin and Ericsson’s (1993) model of Argentine broad money demand. The selected model is an economically sensible and statistically satisfactory error correc- tion model, in which cointegration between money, inflation, the interest rate, and exchange rate depreciation depends on the inclusion of a “ratchet” variable that cap- tures irreversible effects of inflation. Short-run dynamics differ markedly from the long run. Algorithmically based model selection complements opportunities for the researcher to contribute value added in the empirical analysis.
Topic:
Economics, Markets, Finance, and Inflation
Political Geography:
Argentina and South America

129. The Macroeconomic Effects of External Pressures on Monetary Policy

Author:
Davide Debortoli and Ricardo Nunes
Publication Date:
09-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Central banks, whether independent or not, may occasionally be subject to external pressures to change policy objectives. We analyze the optimal response of central banks to such pressures and the resulting macroeconomic consequences. We consider several alternative scenarios regarding policy ob- jectives, the degree of commitment and the timing of external pressures. The possibility to adopt “more liberal” objectives in the future increases current inflation through an accommodation effect. Simultaneously, the central bank tries to anchor inflation by promising to be even “more conservative” in the future. The immediate effect is an output contraction, the opposite of what the pressures to adopt “more liberal” objectives may be aiming. We also discuss the opposite case, where objectives may become “more conservative” in the future, which may be the relevant case for countries considering the adoption of inflation targeting.
Topic:
Finance, Banks, Inflation, and Central Bank
Political Geography:
Global Focus

130. Uncertainty over Models and Data: The Rise and Fall of American Inflation

Author:
Seth Pruitt
Publication Date:
12-2008
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
An economic agent who is uncertain of her economic model learns, and this learning is sensi- tive to the presence of data measurement error. I investigate this idea in an existing framework that describes the Federal Reserve’s role in U.S. inflation. This framework successfully fits the observed inflation to optimal policy, but fails to motivate the optimal policy by the perceived Philips curve trade-off between inflation and unemployment. I modify the framework to account for data uncertainty calibrated to the actual size of data revisions. The modified framework ameliorates the existing problems by adding sluggishness to the Federal Reserve’s learning: the key point is that data uncertainty is amplified by the nonlinearity induced by learning. Conse- quently there is an explanation for the rise and fall in inflation: the concurrent rise and fall in the perceived Philips curve trade-off.
Topic:
Economics, Inflation, and Models
Political Geography:
United States and North America