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1 – 10 of over 2000Shailesh Rastogi and Jagjeevan Kanoujiya
This study aims to analyze the volatility spillover effects of crude oil, gold price, interest rate (yield) and the exchange rate (USD (United States Dollar)/INR (Indian National…
Abstract
Purpose
This study aims to analyze the volatility spillover effects of crude oil, gold price, interest rate (yield) and the exchange rate (USD (United States Dollar)/INR (Indian National Rupee)) on inflation volatility in India.
Design/methodology/approach
This study uses the multivariate Generalized Autoregressive Conditional Heteroscedasticity (GARCH) models (Baba, Engle, Kraft and Kroner [BEKK]-GARCH and dynamic conditional correlation [DCC]-GARCH) to examine the volatility spillover effect of macroeconomic indicators and strategic commodities on inflation in India. The monthly data are collected from January 2000 till December 2020 for the crude oil price, gold price, interest rate (5-year Indian bond yield), exchange rate (USD/INR) and inflation (wholesale price index [WPI] and consumer price index [CPI]).
Findings
In BEKK-GARCH, the results reveal that crude oil price volatility has a long time spillover effect on inflation (WPI). Furthermore, no significant short-term volatility effect exists from crude oil market to inflation (WPI). However, the short-term volatility effect exists from crude oil to inflation while considering CPI as inflation. Gold price volatility has a bidirectional and negative spillover effect on inflation in the case of WPI. However, there is no price volatility spillover effect from gold to inflation in the case of CPI. The price volatility in the exchange rate also has a negative spillover effect on inflation (but only on CPI). Furthermore, volatility of interest rates has no spillover effect on inflation in WPI or CPI. In DCC-GARCH, a short-term volatility impact from all four macroeconomic indicators to inflation is found. Only crude oil and exchange rate have long-term volatility effect on inflation (CPI).
Practical implications
In an economy, inflation management is an essential task. The findings of the current study can be beneficial in this endeavor. The knowledge of the volatility spillover effect of all the four markets undertaken in the study can be significantly helpful in inflation management, especially for inflation-targeting policy.
Originality/value
It is observed that no other study has addressed this issue. We do not find any other research which studies the volatility spillover effect of gold, crude oil, interest rate and exchange rate on the inflation volatility. The current study is novel with a significant contribution to the vast knowledge in this context.
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Vivek Moorthy and Shrikant Kolhar
The purpose of this paper is to analyse the implications of sharply rising food prices for monetary policy in India and similar emerging economies at present.
Abstract
Purpose
The purpose of this paper is to analyse the implications of sharply rising food prices for monetary policy in India and similar emerging economies at present.
Design/methodology/approach
This paper uses analytical arguments from relevant macroeconomic literature and evidence from late 1960s US data to examine whether the 1970s stagflation was due to the OPEC price hike. It develops a two person (rich and poor), two commodity (food and non‐food) model to examine the impact of rising food prices on GDP, on measures of inflation, and on welfare, in the model.
Findings
Previously neglected evidence indicates that stagflation (simultaneously rising unemployment and inflation) preceded the OPEC price hike. The model results indicate that when food prices rise, the GDP deflator falls relative to the consumer price index (CPI).
Research limitations/implications
The impact of supply shocks should be investigated by carefully examining links between abnormal rainfall and weather and output and prices on commodity by commodity basis. Further, technical issues pertaining to construction of a composite CPI representative of the population need to be explored.
Practical implications
Monetary policy in India (and similar emerging economies) should focus upon a population weighted CPI or some variant thereof.
Social implications
High GDP growth should not lead to complacency, since when food prices are rising, the overall welfare impact may be negative.
Originality/value
The model presented in this paper explains the sustained divergence in India, in recent years, between the CPI versus the GDP deflator measures of inflation. It also highlights a possible similar divergence between GDP and overall welfare.
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Eiji Okano, Masataka Eguchi, Hiroshi Gunji and Tomomi Miyazaki
We analyze fluctuations in inflation and the nominal exchange rate under optimal monetary policy with local currency pricing by developing two-country DSGE local currency pricing…
Abstract
We analyze fluctuations in inflation and the nominal exchange rate under optimal monetary policy with local currency pricing by developing two-country DSGE local currency pricing and producer currency pricing models. We estimate our models using Bayesian techniques with Japanese and US data, and calculate impulse response functions. Our estimation results show that local currency pricing is strongly supported against producer currency pricing. From the estimated parameters, we show that completely stabilizing consumer price index inflation is optimal from the viewpoint of minimizing welfare costs and that completely stabilizing consumer price index inflation is consistent with completely stabilizing the nominal exchange rate.
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The purpose of this study is to attempt to analyze Granger causality in the frequency domain framework between producers' prices measured by wholesale price index (WPI) and…
Abstract
Purpose
The purpose of this study is to attempt to analyze Granger causality in the frequency domain framework between producers' prices measured by wholesale price index (WPI) and consumers' prices measured by consumer price index (CPI) in the context of India.
Design/methodology/approach
Analysis was carried out in the framework of time series and for analysis Johansen and Juselius's maximum likelihood approach for cointegration was applied after confirming that variables are integrated of order one, i.e. I(1) through the Lee and Strazicich unit root test. Finally, Granger causality was tested in the frequency domain by utilizing a recently developed approach of Lemmens et al. over the period January 1957‐February 2009.
Findings
The paper finds that CPI Granger cause WPI at a lower, intermediate as well as higher levels of frequency, reflecting very long‐run, intermediate as well as short‐run cycles. By contrast WPI Granger cause CPI at 5 percent level of significance was found at intermediate frequencies, reflecting significant intermediate cycles.
Research limitations/implications
The study reveals that CPI is a leading indicator of producers' prices and inflation (i.e. WPI). This gives an indication that Indian policy analysts ought to control for factors affecting CPI in order to have control on WPI since WPI is used for making various macroeconomic indicators in real terms.
Originality/value
The main contribution of the paper is to show the evidence of bidirectional causality between WPI and CPI. Furthermore, use of a recent approach developed by Lemmens et al. for Granger causality in the frequency domain in this study is also relatively new. To the best of the author's knowledge there is no such study in this area either for developed or developing economy to date.
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Shailesh Rastogi and Jagjeevan Kanoujiya
The nexus of commodity prices with inflation is one of the main concerns for a nation's economy like India. The literature does not have enough volatility-based study, especially…
Abstract
Purpose
The nexus of commodity prices with inflation is one of the main concerns for a nation's economy like India. The literature does not have enough volatility-based study, especially using the multivariate GRACH family of models to find a link between these two. It is the main reason for the conduct of this study. This paper aims to estimate the volatility effects of commodity prices on inflation.
Design/methodology/approach
For ten years (2011–2022), future prices of selected seven agriculture commodities and inflation indices (wholesale price index [WPI] and consumer price index [CPI]) are gathered every month. BEKK GARCH model (BGM) and DCC GARCH model (DGM) are employed to determine the volatility effect of commodity prices (CPs) on inflation.
Findings
The authors find that volatility's short-term (shock) impact on agricultural CPs to inflation does not exist. However, the long-term volatility spillover effect (VSE) is significant from commodities to inflation.
Practical implications
The study's findings have a significant implication for the policymakers to take a long-term view on inflation management regarding commodity prices. The findings can facilitate policy on the choice of commodities and the flexibility of their trading on the commodities derivatives market.
Originality/value
The findings of the study are unique. The authors do not observe any study on the volatility effect of agri-commodities (agricultural commodities) prices on inflation in India. This paper applies advanced techniques to provide novel and reliable evidence. Hence, this research is believed to contribute significantly to the knowledge body through its novel evidence and advanced approach.
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The author analyzes households' inflation expectations data for India, collected quarterly by the RBI for more than a decade. The contribution of this paper lies in two folds…
Abstract
Purpose
The author analyzes households' inflation expectations data for India, collected quarterly by the RBI for more than a decade. The contribution of this paper lies in two folds. First, this study examines the relationship between relatively recent inflation expectations survey of households (IESH) and the actual inflation for India. Secondly, the author employs a structural VAR with the time period 2006 Q2 to 2020 Q2 on inflation expectation survey data of India. A short-term non-recursive restriction is imposed in the model in order to capture the simultaneous co-dependence causal effect of inflation expectation and realized inflation.
Design/methodology/approach
This paper studies the dynamic behavior of inflation expectations survey data in two folds. First, the author analyzes the time series property of the survey data. The author begins with testing the stationarity property of the series, followed by the casual relationship between the expected and actual inflation. The author further examines the short-run and long-run behavior of the IESH with actual inflation. Employing autoregressive distributed lag and Johansen co-integration, the author tested if a long-run relationship exists between the variables. In the second approach, the author investigates the determinants of inflation expectations by employing a non-recursive SVAR model.
Findings
The preliminary explanatory test reveals that inflation expectation is a policy variable and should be used in monetary policy as an instrument variable. The model identifies the price puzzle for India. The author finds that the response of inflation to a monetary policy shock is neutral. The results also indicate that the expectations of the general public are self-fulfilling.
Originality/value
IESH has only commenced from September 2005, hence is relatively new as compared to other survey in developed countries. Being a new data set so far, the author could not locate any study devoted in analyzing the behavior of the data with other macroeconomic variables.
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One major source of inflation in India is her import of intermediate inputs. In the modern globalized world, where India is deeply integrated with the world economy, exchange rate…
Abstract
One major source of inflation in India is her import of intermediate inputs. In the modern globalized world, where India is deeply integrated with the world economy, exchange rate affects inflation through various channels. This chapter attempts to gauge the extent of exchange rate pass through to inflation. Using the co-integration framework, this chapter finds considerable evidence of imported inflation in the long run, almost 40%–74% for CPI-IW. At the same time, we also discern evidence of short-run price stickiness of CPI-IW. However, for CPI-AL, the extent of pass-through is a meager 14%. This is due to the fact that CPI-IW gives more weightage to imported components while CPI-AL gives more weight to food and clothing, which are mainly domestically produced.
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Apica Sharma and Paras Sachdeva
The study focuses on examining the impact of the supply shock on the Indian macroeconomic variables during the COVID-19 period.
Abstract
Purpose
The study focuses on examining the impact of the supply shock on the Indian macroeconomic variables during the COVID-19 period.
Design/methodology/approach
Time-varying factor augmented vector autoregressive model has been employed to study the asymmetry in transmission of supply shock on Indian economy during pre- and post-COVID-19 times.
Findings
The authors find that with supply shock, retail food inflation outpaced in COVID-19 times. Production levels reported by IIP fell to abysmally low levels in the post-COVID-19 times when the economy stalled. The liquidity stimulus provided by the central bank led to the negative response of policy rates to the supply shocks during the COVID-19 times.
Originality/value
The study stands novel in examining the impact of COVID-19 pandemic on Indian economy through the lenses of asymmetric transmission of supply shock during pre- and post-COVID-19 times.
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Maryam Hemmati, Saleh S. Tabrizy and Yashar Tarverdi
To study the key determinants of chronically high inflation in Iran.
Abstract
Purpose
To study the key determinants of chronically high inflation in Iran.
Design/methodology/approach
Relying on annual data from 1978 to 2019, the authors employ an Auto-Regressive Distributed Lag (ARDL) model and Error Correction Model (ECM) to study the inflationary effects of monetary and fiscal policies as well as exchange rate swings and sanctions intensification.
Findings
The authors find that increase in money supply, depreciation of nominal exchange rate, increase in fiscal deficit and intensification of sanctions are among the key drivers of inflation in Iran. Their impact is profound in the long run, but in the short run only money supply and currency depreciation are significant. Also, when exploring the inflation in different components of Consumer Price Index (CPI), we find robust long- and short-run effects from money supply and exchange rate, while the effects of fiscal deficit and sanctions vary across different components.
Originality/value
The authors contribute to the literature by setting apart the long-vs short-run effects of key variables on inflation in Iran. The authors also employ improved measures of fiscal deficit and sanctions that are shown to be of significance in the long run. Lastly, the authors go beyond the aggregate index and examine the variations in different CPI components.
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The purpose of this paper is to deal with the dynamics of a Neo‐Keynesian model applied to a small open economy, in order to show the impact of commercial openness on the choice…
Abstract
Purpose
The purpose of this paper is to deal with the dynamics of a Neo‐Keynesian model applied to a small open economy, in order to show the impact of commercial openness on the choice of the optimal inflation target.
Design/methodology/approach
The author uses a neo‐Keynesian model with calibration for Chile.
Findings
The results show that there is a relation between the degree of openness and the type of inflation targeting policy.
Originality/value
The originality of the paper is to use a neo‐Keynesian model to deal with a small open economy, which uses inflation targeting as a monetary rule.
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