Inflation, inflation uncertainty, and relative price dispersion: evidence from bivariate GARCH-M models

Article Abstract:

The observation that inflation may result in the dispersion of relative prices in the economy is examined. While menu cost models suggest that higher trend inflation will boost price dispersion, signal extraction models forecast that an increase in inflation uncertainty will increase relative price dispersion. To test both models, a bivariate generalized autoregressive conditional heteroskedasticity model of inflation and relative price dispersion were created. It was found that, more than trend inflation, inflation uncertainty predicts relative price dispersion.

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Taxation and inflation: a new explanation for capital flows

Article Abstract:

A negative correlation between inflation rate and the after-tax cost of capital and return to saving in each nation is suggested by an analysis of the existing system of taxation. This observation further implies that a nation's net foreign asset position is negatively correlated with its inflation rate in the long-term. Cross-section and time-series regressions involving the countries that belong to the Organization for Economic Cooperation and Development reveal how rates of inflation predict net foreign assets very well.

Taxation, Capital movements

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Time-consistent policy and persistent changes in inflation

Article Abstract:

A model wherein the dynamic consistency problem in monetary policy is the basic cause of inflation, but where changes in inflation are spurred by shocks occurring in actual economies, is presented. In the model, adverse supply shocks trigger a rise in inflation, which continues until policymakers cause a recession that will disinflate. It also explains the inflation inertia phenomenon, wherein a one-time supply shock has a persistent effect on inflation.

Models, Monetary policy

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