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1 – 10 of over 2000Afees Adebare Salisu, Aliyu Akorede Rufai and Modestus Chidi Nsonwu
This study aims to construct alternative models to establish the dynamic relationship between exchange rates and housing affordability by estimating both the short- and long-run…
Abstract
Purpose
This study aims to construct alternative models to establish the dynamic relationship between exchange rates and housing affordability by estimating both the short- and long-run relationship between exchange rates and housing affordability for 18 OECD countries from 1975Q1 to 2022Q4. After that, this study demonstrates how this nexus behaves during high and low inflation regimes and turbulent times.
Design/methodology/approach
This study uses the panel autoregressive distributed lag technique to examine the nexus between housing affordability to capture the distinct characteristics of the sample countries and estimate various short- and long-run dynamics in the relationship between housing affordability and exchange rate.
Findings
Exchange rate appreciation improves housing affordability in the short run, whereas this connection tends to dissipate in the long run. Moreover, inflation can worsen housing affordability during turbulent times, such as the global financial crisis, in both the short and long run. Ignoring these changes in the relationship between exchange rates and housing affordability during turbulent times can lead to incorrect conclusions.
Originality/value
To the best of the authors’ knowledge, this study is the first to examine the association between exchange rates and housing affordability by demonstrating how these variables behave in high and low inflation regimes and turbulent times.
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Fouad Jamaani and Abdullah M. Alawadhi
Driven by the anticipated global stagflation, this straightforward yet novel study examines the cost of inflation as a macroeconomic factor by investigating its influence on stock…
Abstract
Purpose
Driven by the anticipated global stagflation, this straightforward yet novel study examines the cost of inflation as a macroeconomic factor by investigating its influence on stock market growth. Thus, this paper aims to examine the impact of inflation on the probability of initial public offering (IPO) withdrawal decision.
Design/methodology/approach
The paper employs a large dataset that covers the period January 1995–December 2019 and comprises 33,536 successful or withdrawn IPOs from 22 nations with various legal and cultural systems. This study applies a probit model utilizing version 15 of Stata statistical software.
Findings
This study finds that inflation is substantially and positively correlated with the likelihood of IPO withdrawal. Results of this study show that the IPO withdrawal decision increases up to 90% when the inflation rate climbs by 10%. Multiple robustness tests provide consistent findings.
Practical implications
This study's implications are important for researchers, investment banks, underwriters, issuers, regulators and stock exchanges. When processing IPO proposals, investment banks, underwriters and issuers must consider inflation projections to avoid negative effects, as demonstrated by the findings. In addition, regulators and stock exchanges must be aware of the detrimental impact of inflation on competitiveness in attracting new listings.
Originality/value
To the best of the authors’ knowledge, this study is the first to present convincing evidence of a major relationship between IPO withdrawal decision and inflation.
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Solomon Yemidi, Grace Nkansa Asante and Paul Owusu Takyi
The purpose of this research is to examine the impact of alterations in the path of monetary policy rates on inflation via the supply side of an emerging economy.
Abstract
Purpose
The purpose of this research is to examine the impact of alterations in the path of monetary policy rates on inflation via the supply side of an emerging economy.
Design/methodology/approach
The study employed semi-annual data covering the period 2007S1 to 2020S2 on the inflation rate, the combined outputs of industry and agriculture, the lending rate, and the monetary policy rate. The vector autoregression model was estimated and counterfactual simulation exercises were conducted.
Findings
The study revealed that a move from a higher to a lower monetary policy rate regime resulted in a shift in inflation from a higher to a lower regime. In particular, a 200-basis point reduction in the monetary policy rate over the simulation horizon produces a 1.3% fall in the inflation rate over the same period.
Research limitations/implications
The study has a limitation due to the unavailability of a long-span dataset on all relevant variables. As a result, it is important to exercise caution when interpreting the study's findings. A potential area for further research is to explore how changes in interest rates impact inflation in the real economy by utilising other multiple-variable time series techniques.
Practical implications
It is the opinion of the authors that for inflation in Ghana to move to a lower regime, conscious efforts should be made by the monetary authorities to gradually move from a regime of a high monetary policy rate to a lower one.
Social implications
In particular, a 200-basis point reduction in the MPR over the simulation horizon produces a 1.3% fall in the inflation rate over the same period.
Originality/value
This study enhances the authors' knowledge of how monetary policy can affect inflation in developing countries through the supply-side channel.
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Hayelom Yrgaw Gereziher and Naser Yenus Nuru
This paper aims to examine the asymmetric effects of exchange rate shocks on inflation for a small open economy, namely South Africa, over the period 1970Q1–2020Q1.
Abstract
Purpose
This paper aims to examine the asymmetric effects of exchange rate shocks on inflation for a small open economy, namely South Africa, over the period 1970Q1–2020Q1.
Design/methodology/approach
A threshold vector autoregressive model that allows parameters to switch according to whether a threshold variable crosses an estimated threshold is employed to address the objective of this paper. The threshold value is determined endogenously using the Hansen (1996) test. Generalized impulse responses introduced by Koop et al. (1996) are used to study the effects of exchange rate shocks on inflation depending on their size, sign and timing to the inflation cycle. The authors also employed a Cholesky decomposition identification scheme to identify exchange rate shocks in the non-linear model.
Findings
The results show that there is a non-linearity effect of the exchange rate shock on inflation. In particular, the effects of 1 or 2 standard deviations of positive (appreciation) or negative (depreciation) exchange rate shock on inflation are small in the long run but a bit larger in the high inflation regime than the low inflation regime.
Originality/value
This paper contributes to the literature on the non-linear effects of exchange rate pass-through (ERPT) to inflation for Sub-Saharan African economies in general and the South African economy in particular by incorporating the size and timing of the exchange rate shocks to the inflation cycle.
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Inflation and federal monetary efforts to control it with interest rate hikes have very real and overwhelmingly negative consequences on US local governments following the onset…
Abstract
Purpose
Inflation and federal monetary efforts to control it with interest rate hikes have very real and overwhelmingly negative consequences on US local governments following the onset of COVID-19. This study explores the post-pandemic inflationary environment of US local governments; examines the impacts of inflation and high interest rates on local government revenue, operating costs, capital costs, and debt service; reviews local government inflation management strategies, including the use of intergovernmental revenue; and assesses ongoing threats to local government financial health and financial resilience.
Design/methodology/approach
This study uses trend and literature analysis to comment on current issues local governments face.
Findings
The study finds that the growth of property values and resulting stability of property tax revenue has been important to local government revenues; that local governments bear very real burdens as operating and capital costs increase; and that the combination of high inflation and interest rates affects local government debt issuance by negatively affecting credit quality and interest costs, leading to municipal market contraction. Local governments have benefitted tremendously from intergovernmental revenue, but would be ill-advised to rely on it.
Practical implications
Vulnerabilities owing from revenue mismatch with the economy; inadequate affordable housing, inequality, and social issues; a changing workforce and tight labor market; climate change; and federal fiscal contraction—all of which are exacerbated by high inflation and interest rates—require local governments to act strategically, boldly and collaboratively to achieve fiscal health and financial resilience, and to realize positive returns of investments in people and capital.
Originality/value
This work is unique in addressing the post-pandemic impact of inflation and interest rates on local governments.
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Yeva Nersisyan and L. Randall Wray
In this paper, the authors examine the causes of 2021–2023 inflation and evaluate whether raising interest rates is the right solution.
Abstract
Purpose
In this paper, the authors examine the causes of 2021–2023 inflation and evaluate whether raising interest rates is the right solution.
Design/methodology/approach
The authors evaluate both the macroeconomic (too much demand) and microeconomic (monopoly pricing and supply chains) explanations for the causes of inflation.
Findings
The authors argue that the spike in inflation is due to disrupted supply chains and corporations taking advantage of the situation to raise their prices. The aggregate demand stimulus from fiscal policy had all but played out by the time inflation arose, making it an unlikely cause of said inflation.
Originality/value
The authors' paper demonstrates that raising interest rates is the wrong solution to tackling the problem of inflation, especially since it's coming from the supply side.
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Robert Mwanyepedza and Syden Mishi
The study aims to estimate the short- and long-run effects of monetary policy on residential property prices in South Africa. Over the past decades, there has been a monetary…
Abstract
Purpose
The study aims to estimate the short- and long-run effects of monetary policy on residential property prices in South Africa. Over the past decades, there has been a monetary policy shift, from targeting money supply and exchange rate to inflation. The shifts have affected residential property market dynamics.
Design/methodology/approach
The Johansen cointegration approach was used to estimate the effects of changes in monetary policy proxies on residential property prices using quarterly data from 1980 to 2022.
Findings
Mortgage finance and economic growth have a significant positive long-run effect on residential property prices. The consumer price index, the inflation targeting framework, interest rates and exchange rates have a significant negative long-run effect on residential property prices. The Granger causality test has depicted that exchange rate significantly influences residential property prices in the short run, and interest rates, inflation targeting framework, gross domestic product, money supply consumer price index and exchange rate can quickly return to equilibrium when they are in disequilibrium.
Originality/value
There are limited arguments whether the inflation targeting monetary policy framework in South Africa has prevented residential property market boom and bust scenarios. The study has found that the implementation of inflation targeting framework has successfully reduced booms in residential property prices in South Africa.
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Richard Amoatey, Richard K. Ayisi and Eric Osei-Assibey
The purpose of this study is twofold. First, to estimate an optimal inflation rate for Ghana and second, to investigate factors that account for the differences between observed…
Abstract
Purpose
The purpose of this study is twofold. First, to estimate an optimal inflation rate for Ghana and second, to investigate factors that account for the differences between observed and target inflation.
Design/methodology/approach
The paper explored the questions within two econometric frameworks, the Autoregressive Distributed Lag (ARDL) and Threshold Regression Models using data spanning the period 1965–2019.
Findings
The study estimated a range of 5–7% optimal inflation for Ghana. While this confirms the single-digit inflation targeting by the Bank of Ghana, the range is lower than the central bank's band of 6–10%. The combined behaviours of the central bank, banks and external outlook influence inflation target misses.
Practical implications
The study urges the central bank to continue pursuing its single-digit inflation targeting. However, it implies that there is still room for the Bank to further lower the current inflation band to achieve an optimal outcome on growth and welfare. Again, the Bank should commit to increased transparency and accountability to enhance its credibility in attaining the targeted inflation.
Originality/value
The study is one of the first attempts in Africa in Ghana to estimate an optimal inflation target and investigate the underlying factors for deviation from the targets.
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This paper aims to test the hedging ability of housing investment against inflation in Japan and the USA during the period 2000–2020.
Abstract
Purpose
This paper aims to test the hedging ability of housing investment against inflation in Japan and the USA during the period 2000–2020.
Design/methodology/approach
This study applies the deep learning method and The exponential general autoregressive conditional heteroskedasticity in mean (1, 1) model with breaks.
Findings
Within the asymmetric framework, it is found that housing returns (HR) can hedge against inflation in both these markets, which mentions that when investing in the housing market in Japan and the USA, investors are compensated for bearing from inflation. This result is consistent with Fisher’s hypothesis. Especially, the empirical results show that the risk-return tradeoff is available in Japan’s housing market and not available in the US housing market. Any signal of a high inflation rate – referred to as “bad news” – may cause a drop in HR in Japan and a raise in the USA.
Originality/value
To the best of the author’s knowledge, this is one of the first studies using the deep learning method (long short-term memory model) to estimate the expected/unexpected inflation rates.
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Muhammad Sajid, Amanat Ali, Sareer Ahmad, Nikhil Chandra Shil and Izaz Arshad
This study empirically examines the impact of some domestic as well as global factors such as trade openness (TO), money supply (MS), exchange rate, global oil prices (GOPs) and…
Abstract
Purpose
This study empirically examines the impact of some domestic as well as global factors such as trade openness (TO), money supply (MS), exchange rate, global oil prices (GOPs) and interest rate (IR) on inflation.
Design/methodology/approach
This study deploys a quantitative method considering 30 years of data (1991–2020) from four South Asian countries, namely, Sri Lanka, Pakistan, Bangladesh and India. To determine the potential impact of different factors on inflation, this study applies the panel analysis of the system generalized method of moments (SGMM).
Findings
This study empirically finds that TO, MS, exchange rate and GOPs have a positive impact on inflation, while IR and the structural adjustment program (SAP) have a negative impact on inflation. Out of the various determinants considered in this study, TO, exchange rate and the SAP are insignificant, while the rest of the variables are significant and consistent with previous studies.
Practical implications
This study informs policymakers about maintaining price stability and fostering economic growth in South Asian nations. It breaks new ground as the first empirical examination of the International Monetary Fund (IMF)’s SAP impact on inflation in the region.
Originality/value
This study tries to find out whether the SAP of the IMF is responsible for inflation in South Asian countries. It gives renewed attention to the causality of inflation from the perspective of countries receiving loans from donors, especially the IMF.
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