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Motivated by the debate on how best to use tax as a policy tool to fill the huge development financing gap in African countries on the one hand, and achieve price stability objective on the other hand, this paper examines the role of different tax measures in the predictability of price stability in selected African countries using a GARCH-MIDAS framework. We find that taxes contribute significantly to inflation volatility, albeit with mixed outcomes. While the results show that raising income, profits and capital gains tax for most African countries heightens inflation volatility, except for Madagascar, we also find that overall tax revenue and customs and other import duties tax had no significant impact on inflation volatility in most of the countries. We also record out-of-sample forecast gains in accounting for tax in the prediction of inflation volatility. For policy, the paper underscored the need for country-specific tax policy designs and implementation strategies. These may include to expand the tax net and improve efficiency of tax collection and administration (for countries where a further increase in tax rate could heighten inflation volatility or in addition consider a marginal increase in tax rate if tax is not a key predictor of inflation). The general policy option is to diversify and stabilize non-tax revenue streams for consistent funding of essential public goods and services and developmental initiatives.

Motivated by the dearth of evidence, we examine the impact of monetary policy communication on inflation expectations in Africa. Employing text-mining techniques to analyse the monetary policy statements of six African central banks, we compute a novel index of monetary policy communication (MPCI) using the extracted word counts, readability, sentiment and tone indicators. We provide new evidence of a positive and statistically significant impact of sentiments, tone and the MPCI on inflation expectations in Africa. Our results also reveal a rising influence of sentiments in anchoring expectations during the COVID-19 pandemic era. Our results are robust to alternative measures of inflation expectation and to global economic uncertainty. We recommend concise and lucid policy statements alongside statements with tone and policy decision consistency for anchoring inflation expectations. Furthermore, investors should carefully analyse and respond to signals from central bank communication, incorporating these insights into their investment strategies and risk management practices.

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. [ABSTRACT FROM AUTHOR]

Recent projections on sea level rise (SLR) show that approximately 32% and 22.62% of Lagos City will be inundated by 2100 and 2050, respectively. There are also few empirical estimates of the impact of such forecasts on the current price of residential real estates that are highly exposed to the SLR. In that regard, this study investigates the effects of proximity to the oceanfront and exposure to SLR on the current price of residential real estate in Lagos, a coastal city in Nigeria. The study employs a hedonic pricing model (HPM), and the results reveal three key findings. First, the results show that beachfront residential real estate sells at a 5.2% premium for every kilometre closer to the coastline. Second, the estimates show that residential real estate highly exposed to SLR sells at a 0.5% discount relative to a comparable unexposed property. Third, analysis indicates that Nigeria's real estate market expects a 37-year window before a 1 km2 is completely underwater, rendering affected residential real estate worthless. Overall, these findings were interpreted as evidence that environmental amenities and climate risks are priced in Nigeria's real estate market. Therefore, this study concludes that both climate change and proximity to the coast influence the current price of residential real estate in the coastal city of Lagos, Nigeria. [ABSTRACT FROM AUTHOR]

To which extent do equity and housing hedge against inflation? Despite the extensive literature, there is only little consensus. This paper presents evidence on this question from the Jordà–Schularick–Taylor Macrohistory Database covering 16 countries from 1870 to 2020. The results depend on the time horizon and period considered. Within a 1-, 5-, and 10-year horizon, housing at least partially hedges against inflation. The nominal return–inflation relation is higher in the post-war period. In the long run, housing hedges excessively in the whole sample and perfectly in the post-war period. Equity provides no hedge within 1 year in the entire period, and the returns tend to decrease with inflation in the post-war period. The hedge improves slightly with a longer time horizon and is perfect in the long run in the post-war period. Thus, housing is at least weakly superior in hedging against inflation. The results are robust to a non-housing consumption price index and an asset price appreciation approach. [ABSTRACT FROM AUTHOR]

This research aimed to study the determinants of tourism demand in Tunisia from 1995 to 2019 with four independent variables: gross domestic product, consumer price index, the real exchange rate, and air transport passengers carried. The research employed the Unit root test, Co-integration test, and Vector Error Correction model (VECM) to examine the variables’ short- and long-run relationship dynamics. The results show that co-integrating relations exist among the variables; all independent variables negatively impact tourism demand except Air transport. Depending on the results obtained, policymakers should be aware of the negative effect of the country’s political instability on the extent of external tourism demand. In this sense, the government must restore political stability to encourage tourists to visit Tunisia. Future studies should consider factors such as the economy’s trade openness and oil prices.

with the introduction of the euro as the domestic currency, economies have faced inflationary pressures caused by price convergence towards higher levels. During the last period of significant negative shocks from the environment, by entering the euro area, the negative effects of the likelihood of inflation caused by the introduction of the euro may be absent.

In this study, we examine the connectedness of exchange rate uncertainty and inflation. In an economy with a flexible exchange rate, price rigidities can lead importers to carry exchange rate risk and they impose a premium for the risk they face by increasing consumer prices. This pricing behavior provides a channel between exchange rate uncertainty and overall price level. We empirically analyze the impact of exchange rate uncertainty on inflation by using panel data from 149 countries over the period 1980–2017. The estimation results point that the uncertainty of the exchange rate has a significant and positive effect on inflation. We also show that effect of exchange rate uncertainty on inflation is nonlinear. As the exchange rate uncertainty increases, the size of its effect on inflation decreases. Moreover, the degree of exchange rate pass-through and the effect of exchange rate uncertainty on inflation differ among country groups and their effects on inflation have decreased through time.

This research note explores the puzzle of why demand-side pressures remained high in the United States in late 2022 through 2023, even after fiscal stimulus measures had tapered off. The author speculates that a shift in societal time preference, where people began to prioritize present consumption over saving for the future, may explain this persistence in demand. The hypothesis is supported by a drop in expected life expectancy in the U.S. and changes in consumption patterns. The note concludes by suggesting further empirical research on this topic and exploring similar shifts in societal time preference in response to other significant events. [Extracted from the article]

We propose a framework for consistently evaluating core inflation measures via a straightforward application of sound statistical inference principles. Under this framework, inflation measures (both headline and core) are regarded as estimators tracking the economy’s true, unobserved inflation rate. We depart from the arbitrary convention in the literature of approximating true (or trend) inflation as some moving average of the observed headline inflation. Instead, we regard trend inflation as the unobserved inflation rate that corresponds to the whole population of consumer price changes while the observed inflation measures are estimators of trend inflation based on particular samples of consumer price changes. Hence, the evaluation of inflation measures is rigorously derived from the sampling distribution properties of the corresponding estimators, in contrast to the use of ad hoc criteria for evaluating core inflation measures, prevalent both in the academic literature and in most central banks’ practices. We implement our evaluation approach for the Guatemalan Consumer Price Index (CPI) data by applying a computational bootstrapping technique. Finally, we showcase the evaluation results for the Guatemalan data regarding the performance of some widely used core inflation measures.

AbstractThe price of rice at the retail level affects consumer welfare and influences inflation. The research objective was to study rice retail trader pricing behavior in traditional markets. This study employed an econometric model consisting of six equations of price spread between the retail market level and wholesale level of different rice qualities and grades. To overcome endogeneity problems due to the use of several equations that could cause potential bias, the simultaneous method with the 3SLS approach was deemed appropriate to use to obtain consistent and efficient coefficient estimates. The results show that, by examining the behavior of price spreads in the model, it can be deduced that rice retailers in the traditional market applied a price stabilization strategy. A lower price spread responded to an increase in price at the wholesale level. Rice retailers in traditional markets also implemented a price-averaging strategy. The results of this study have important policy implications for reducing food price volatility and its impact on inflation. That is, a price policy aimed at price stabilization at the retail level, as in this study, will be more effective if the price stabilization is focused on the wholesale level. However, if the pricing policy continues to be applied at the retail level, it must consider the relationships between different rice qualities and prices. This study also highlights the need for more intensive research on pricing behavior at the wholesale level.

We construct recursive solutions for, and study the properties of the dynamic equilibrium of an economy with three types of agents: (i) household/investors who supply labor with a finite elasticity, consume a large variety of goods that are not perfect substitutes and trade government bonds; (ii) firms that produce those varieties of goods, receive productivity shocks and set prices in a Calvo manner; (iii) a government that collects an income-driven fiscal surplus and acts mechanically, buying and selling bonds in accordance with a Taylor policy rule based on expected inflation. In this setting, we show that stock market returns are much less than one-for-one related to inflation over a 1-year holding period, which means that stock securities have a strong nominal character. We also show that their nominal character diminishes as the length of the stock-holding period increases, in accordance with empirical evidence. [ABSTRACT FROM AUTHOR]

The existence of a clear and credible anchor for inflation expectations has proved to be a fundamental ingredient to keep actual inflation closer to the price stability objective.[7] Measuring Inflation Expectations Despite their key role for monetary policy, measuring, and sometimes interpreting, inflation expectations is not simple. (2) Probabilities inferred from inflation options: <0 ( <1) is the probability of inflation being smaller than 0 (1) on average in the next 5 years and >3 ( >4) is the probability of inflation being larger than 3 (4) on average in the next 5 years; 50-day moving averages Inflation Expectations and the ECB Monetary Policy As I have recently observed,[23] evidence suggests that long-term inflation expectations in the euro area are substantially anchored (reflecting the overall credibility of monetary policy) and short- to medium-term expectations, while still remaining very volatile, are clearly on a downward trend. Inflation Expectations and the Monetary Transmission Mechanism Monetary policy affects the real economy and inflation with "long and variable" lags, to use Milton Friedman's famous expression, and through a complex system of channels known as the monetary transmission mechanism. Keywords: Inflation; Monetary policy; Euro area; Shocks; E00; E31; E42; E43 EN Inflation Monetary policy Euro area Shocks E00 E31 E42 E43 111 129 19 10/04/23 20230901 NES 230901 Supplementary Information The online version contains supplementary material available at https://doi.org/10.1007/s11293-023-09771-y. [Extracted from the article]

In recent years, there has been a burgeoning literature exploring the effects of gender discrimination on macroeconomic outcomes ranging from productivity and gross domestic product per capita to economic growth. A separate literature in recent decades on the time-inconsistency of monetary policymaking has examined the role of labor market distortions in explaining differences in cross-country inflation rates. This paper brings these two disparate streams of research together and explores the impact of gender discrimination laws on inflation. Using the World Bank's index of gender discrimination laws from the Women, Business and Law database, the results from the system generalized method of moments estimator applied to 117 countries over the period 1970–2019 indicate that gender discrimination laws have a positive causal impact on inflation. This effect is robust to different specifications and estimation methodologies. From a policy perspective, the findings suggest that labor market reforms aimed at reducing gender discrimination laws can be an effective mechanism in promoting low inflation. [ABSTRACT FROM AUTHOR]

A central bank that faces inflation above target may fail to bring it down. This article discusses six ways in which this happens because the central bank is dominated by: misjudgement, expectations, fiscal policy, financial markets, recession fears, or external forces. It applies this approach to the challenge facing the ECB in 2023–24. The hope is that the factors identified can serve as warning signs for what to avoid. [ABSTRACT FROM AUTHOR]

For the academic audience, this paper presents the outcome of a well-identified, large change in the monetary policy rule from the lens of a standard New Keynesian model and asks whether the model properly captures the effects. For policymakers, it presents a cautionary tale of the dismal effects of ignoring basic macroeconomics. In doing so, it also clarifies how neo-Fisherian disinflation may work or fail, in theory and in practice. The Turkish monetary policy experiment of the past decade, stemming from a belief of the government that higher interest rates cause higher inflation, provides an unfortunately clean exogenous variance in the policy rule. The mandate to keep rates low, and the frequent policymaker turnover orchestrated by the government to enforce this, led to the Taylor principle not being satisfied and eventually a negative coefficient on inflation in the policy rule. In such an environment, was the exchange rate still a random walk? Was inflation anchored? Does the "standard model" suffice to explain the broad contours of macroeconomic outcomes in an emerging economy with large identifying variance in the policy rule? There are no surprises for students of open-economy macroeconomics; the answers are no, no and yes. [ABSTRACT FROM AUTHOR]

This article presents a model of quantitative easing (QE) at the zero lower bound (ZLB) on the short-term nominal interest rate. QE, which reduces the maturity of government debt, is effective at the ZLB because it generates expectations of future monetary expansion in a time-consistent equilibrium. Numerical experiments show that this effect can be substantial. [ABSTRACT FROM AUTHOR]

We assess the prospects for central banks using inflation expectations as a policy tool for stabilization purposes. We review recent work on how expectations of agents are formed and how they affect their economic decisions. Empirical evidence suggests that inflation expectations of households and firms affect their actions but the underlying mechanisms remain unclear, especially for firms. Two additional limitations prevent policy-makers from being able to actively manage inflation expectations. First, available surveys of firms' expectations are systematically deficient, which can only be addressed through the creation of large, nationally representative surveys of firms. Second, neither households' nor firms' expectations respond much to monetary policy announcements in low-inflation environments. We provide suggestions for how monetary policy-makers could pierce this veil of inattention through new communication strategies as well as the potential pitfalls to trying to do so.

We assess the prospects for central banks using inflation expectations as a policy tool for stabilization purposes. We review recent work on how expectations of agents are formed and how they affect their economic decisions. Empirical evidence suggests that inflation expectations of households and firms affect their actions but the underlying mechanisms remain unclear, especially for firms. Two additional limitations prevent policy-makers from being able to actively manage inflation expectations. First, available surveys of firms' expectations are systematically deficient, which can only be addressed through the creation of large, nationally representative surveys of firms. Second, neither households' nor firms' expectations respond much to monetary policy announcements in low-inflation environments. We provide suggestions for how monetary policy-makers could pierce this veil of inattention through new communication strategies as well as the potential pitfalls to trying to do so.