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1. Low inflation bends the Phillips curve around the world

Author:
Kristin Forbes, Joseph E. Gagnon, and Christopher G. Collins
Publication Date:
03-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper models inflation by combining the multicountry framework of one of its authors (Forbes) with the nonlinear specification proposed by the other two (Gagnon and Collins). The results find strong support for a Phillips curve that becomes nonlinear when inflation is low, in which case excess economic slack has little effect on inflation. This finding is consistent with evidence of downward nominal wage and price rigidity. The estimates also show a significant and economically meaningful Phillips curve relationship between slack and inflation when slack is negative (i.e., when output is above long-run potential). In this nonlinear model, international factors play a large role in explaining headline inflation, a role that has increased over time, supporting the results of Forbes’ linear model.
Topic:
Economics, Inflation, and Data
Political Geography:
Global Focus

2. The Exchange Rate Pass-Through to Inflation and its Implications for Monetary Policy in Cameroon and Kenya

Author:
Dongue Ndongo Patrick Revelli
Publication Date:
01-2020
Content Type:
Research Paper
Institution:
African Economic Research Consortium (AERC)
Abstract:
Understanding how domestic prices adjust to the exchange rate enables us to anticipate the effects on inflation and monetary policy responses. This study examines the extent of the exchange rate pass-through to the Consumer Price Index in Cameroon and Kenya over the 1991-2013 period. The results of its econometric analysis shows that the degree of the exchange rate pass-through is incomplete and varied between 0.18 and 0.58 over one year in Kenya, while it varied between 0.53 and 0.89 over the same period in Cameroon. For the long term, it was found to be equal to 1.06 in Kenya and to 0.28 in Cameroon. A structural VAR analysis using impulse-response functions supported the results for the short term but found a lower degree of pass-through for the exchange rate shocks: 0.3125 for Kenya and 0.4510 for Cameroon. It follows from these results that the exchange rate movements remain a potentially important source of inflation in the two countries. Variance decomposition shows that the contribution of the exchange rate shocks is modest in the case of Kenya but significant in that of Cameroon.
Topic:
Development, Economics, Monetary Policy, Exchange Rate Policy, Economic Policy, and Inflation
Political Geography:
Kenya, Africa, and Cameroon

3. Money, Stability, and Free Societies

Author:
Steve H. Hanke
Publication Date:
06-2020
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Monetary instability poses a threat to free societies. Indeed, currency instability, banking crises, soaring inflation, sovereign debt defaults, and economic booms and busts all have a common source: monetary instability. Furthermore, all these ills induced by monetary instability bring with them calls for policy changes, many of which threaten free societies. One who understood this simple fact was Karl Schiller, who was the German Finance Minister from 1966 until 1972. Schiller’s mantra was clear and uncompromising: “Stability is not everything, but without stability, everything is nothing” (Marsh 1992: 30). Well, Schiller’s mantra is my mantra. I offer three regime changes that would enhance the stability in what Jacques de Larosière (2014) has asserted is an international monetary “anti-system.” First, the U.S. dollar and the euro should be formally, loosely linked together. Second, most central banks in developing countries should be mothballed and replaced by currency boards. Third, private currency boards should be permitted to enter the international monetary sphere.
Topic:
Debt, Foreign Exchange, Monetary Policy, Developing World, Inflation, and Currency
Political Geography:
Europe, United States of America, and European Union

4. Quarterly Review of the Georgian Economy (III Quarter, 2019)

Author:
Merab Kakulia, Nodar Kapanadze, and Lela Bakhtadze
Publication Date:
01-2020
Content Type:
Special Report
Institution:
Georgian Foundation for Strategic International Studies -GFSIS
Abstract:
The Quarterly Review of the Georgian Economy is an electronic publication of the Georgian Foundation for Strategic and International Studies (Rondeli Foundation), which aims at informing readers about the ongoing processes within the country’s economy. The review is based on data of official statistics and on expert estimates.
Topic:
Debt, International Trade and Finance, Foreign Direct Investment, Budget, Employment, Economy, Economic growth, Banks, and Inflation
Political Geography:
Eurasia, Caucasus, and Georgia

5. Does Low Inflation Pose a Risk to Economic Growth and Central Banks Reputation?

Author:
Marek Dabrowski
Publication Date:
03-2020
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
Inflation in advanced economies is low by historical standards but there is no threat of deflation. Slower economic growth is caused by supply-side constraints rather than low inflation. Below-the-target inflation does not damage the reputation of central banks. Thus, central banks should not try to bring inflation back to the targeted level of 2%. Rather, they should revise the inflation target downwards and publicly explain the rationale for such a move. Risks to the independence of central banks come from their additional mandates (beyond price stability) and populist politics.
Topic:
Economic growth, Inflation, and Central Bank
Political Geography:
Global Focus

6. Hyperinflation in Venezuela: A Stabilization Handbook

Author:
Gonzalo Huertas
Publication Date:
09-2019
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The unrelenting surge in prices in Venezuela has crippled the economy and deepened the humanitarian crisis there. Huertas lays out a feasible stabilization plan to stop Venezuela’s hyperinflation. The extent of the humanitarian crisis and shortage of basic goods and services suggests that, on the fiscal side, a stabilization plan should focus primarily on reallocating rather than reducing spending. The authorities should avoid austerity policies and instead spend on taking care of the Venezuelan people. Stabilizing the price level while providing relief to the country’s population would require significant financial assistance from the rest of the world, so it is critical that Venezuela secure strong financial support from the international community. Successful stabilization requires a credible plan to transition to a responsible fiscal policy, the financial resources to carry it out, and the political will to sustain it.
Topic:
Security, Economics, Finance, Inflation, and Humanitarian Crisis
Political Geography:
South America and Venezuela

7. Inflation Targets in Latin America

Author:
José De Gregorio
Publication Date:
11-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Many emerging-market economies have adopted inflation targeting regimes since they were introduced by New Zealand in 1990. Latin America has not been the exception. Currently eight Latin American countries conduct monetary policy through inflation targeting regimes: Brazil, Chile, Colombia, Guatemala, Mexico, Paraguay, Peru, and Uruguay. This paper reviews the history of chronic inflation in Latin America and describes these countries’ experience with inflation targets and their performance during the global financial crisis.
Topic:
Markets, Developing World, Economies, and Inflation
Political Geography:
Brazil, Colombia, Uruguay, Latin America, Central America, Mexico, Chile, Peru, Guatemala, and Paraguay

8. Low Inflation Bends the Phillips Curve

Author:
Joseph E. Gagnon and Christopher G. Collins
Publication Date:
04-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The Phillips curve, which traces out a negative relationship between inflation and unemployment, has undergone tremendous changes over more than 100 years. Some researchers argue that the slope of the curve in the United States fell substantially around 20 years ago so that unemployment now has little or no effect on inflation. This paper shows that another hypothesis is equally consistent with the data: The Phillips curve may be nonlinear when inflation is low, with the economy having operated in the flat region of the curve for most of the past 20 years. The next few years may be decisive in the debate between these hypotheses, as unemployment has returned to a range in which a nonlinear curve ought to display significant steepness. A flat Phillips curve implies little change in inflation going forward, but a nonlinear curve implies moderate increases in inflation over the next few years.
Topic:
Economics, Inflation, and Unemployment
Political Geography:
North America and United States of America

9. Fiscal Transfers and Inflation: Evidence from India

Author:
Girish Bahal and Anand Shrivastava
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
Centre for Sustainable Employment, Azim Premji University
Abstract:
Controlling for monetary policy, government transfers are potentially inflationary. This, however, may not be true when the economy is demandconstrained. Using a panel data of 17 Indian states over 30 years, we show that government transfers via welfare programs do not lead to inflation. For identification, we use a narrative shock series of transfer spending that is based on the introduction of new welfare programs. We then look at a specific program, NREGA, which has been shown to increase rural wages, and show that its implementation did not increase inflation.
Topic:
Economics, Government, Labor Issues, Monetary Policy, Employment, Inflation, and Demand
Political Geography:
India

10. Modern Monetary Theory: Cautionary Tales from Latin America

Author:
Sebastian Edwards
Publication Date:
10-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
dea has emerged in economic policy circles in the United States: “Modern Monetary Theory” (MMT). The central tenet of this view is that it is possible to use expansive monetary policy—money creation by the central bank (i.e., the Federal Reserve)—to finance large fiscal deficits, and create a “jobs guarantee” program that will ensure full employment and good jobs for everyone. This view is related to Abba Lerner’s (1943) “functional finance” idea, and has become very popular in progressive spheres. According to MMT supporters, this policy would not result in crowding out of private investment, nor would it generate a public debt crisis or inflation outbursts.
Topic:
Debt, Monetary Policy, Populism, Banks, Economic Policy, and Inflation
Political Geography:
Latin America