There is a limited amount of literature regarding spillover effects on inflation. The previous literature is focused on a small number of countries, and on shocks coming from demand and supply. The objective of this thesis is to investigate how a change in the European Central Bank (ECB) policy rate affects Swedish inflation in the short and long run. To this end, this thesisestimates a cointegrated vector autoregressive (CVAR) model using data for the period from 2000 to 2022. The results show that a change in the ECB rate does not have statistically significant effect on the Swedish inflation in the short run, but has statistically significant effect in the long run. The long run results do also show that an increase in the ECB rate have a positive effect on the Swedish central bank’s policy rate.

Background: Consumers of Gen Z are facing a reality of high inflation. With their unique characteristics and strong attitudes towards sustainability and environmental concern, this thesis is examining how their sustainable consumption is affected by inflation. Purpose: The purpose of this study is to examine the impact of inflation on the sustainable consumption of Generation z.  Method: A paradigm of interpretivism and abductive reasoning is used in the research and a multiple case study was conducted using semi-structured interviews.  Conclusion: Consumers of Gen Z are having a difficult time purchasing sustainable products because of inflation. Sustainable consumption has become difficult to maintain due to having less funds among Gen Z. As a result, Gen z consumers changed their consumption to less- costly and more sustainable alternative in order to adapt to the economic situation.   Despite inflation, our research has shown Gen Z consumers are still dedicated to the issue of sustainability and environment.

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This dissertation examines the role of asset prices to act as a transmission and amplification mechanism. Specifically, it looks at how changes in asset prices can help transmit and amplify technology shocks through the credit channel by changing the supply of loanable funds, or changing the supply of deposits, or both. Using a modified version of the Kiyotaki-Moore credit cycles model with concave utility and decreasing returns to scale production function, the dissertation illustrates that asset prices can as a credible amplification and transmission mechanism. Using concave utility and decreasing returns to scale production function allows the incorporation risk aversion into the credit cycles model. The model can help explain the gap between observed magnitude of shocks, and the corresponding changes in economic activity. The behavior of a heterogeneous agent economy in response to a technology shock is simulated using computer programs. The simulations show that a one percent technology shock translates into a more than four percent change in capital held by the constrained agents by moving capital from one agent type to the other. This moves the economy away from a first-best equilibrium. If the technology shock is positive there is an increased demand of capital from the more productive agents, and thus a more than proportionate increase in output. If the technology shock is negative, the opposite path is followed, and economic activity falls more than proportionately. There are credit constraints built into the model. Agents' access to credit is determined by the value of collateral on oer, which in turn depends on asset prices. Technology shocks change demand for assets, their prices, their value as collateral, and hence agents' access to credit. Further, since prices are forward looking, a shock in one period propagates through time. These simulations show that the effects of the shock can be felt up to 13 periods after it has hit. An event analysis with housing price data from 18 countries spanning a period of more than four decades is also performed. It shows that there is strong co-movement of housing prices and economic activity. In particular, larger changes in housing prices have been accompanied by qualitatively similar changes in economic activity. The period leading up to the peak of a real estate cycle is accompanied by a more than proportionate increase in private sector lending, and once the peak has been crested, there is a more than proportionate fall in nominal private sector lending. This evidence is in sync with the earlier observation that changes in asset prices influence agents' access to credit and contribute to the persistence of the effects of the shock far into the future. Further, the preferred measure of economic health, the rate of inflation, sees no measurable change in periods leading up to a real estate peak, and beyond. This throws up the need for some other measure of economic health that is better able to capture the events in asset markets. Policy makers have been paying more attention to this channel in the aftermath of the sub-prime mortgage crisis in the United States. There have been multiples changes in regulatory policy across the world, and specific steps are being taken to dampen exuberance in the real estate market. Only time can tell if these measures turn out to be effective, but at least a step has been taken towards realizing that housing market can lead to a wider economic and banking crisis. / Economics

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Most of empirical modeling involves the use of Ordinary Least Squares regression where the residuals are assumed normal, independent, and identically distributed. In finite samples, these assumptions becomes critical for accurate estimations, however, in macroeconomics in particular, these assumptions are rarely tested. This study addresses the applications of statistical testing methods and model respecification within the context of applied macroeconomics. The first application is a statistical comparison of Gregory Mankiw, David Romer and David Weil’s A Contribution to the Empirics of Economic Growth, and Nazrul Islam’s Growth Empirics: A Panel Data Approach. This analysis shows that the models in both papers are statistically misspecified. When respecified, the functional forms of Mankiw, Romer, and Weil’s models change considerably whereas Islam’s retain the theoretical structure. The second application is a study of the impact of inflation on investment and growth. After instrumenting for inflation with a set of political variables, I find that between approximately 1% and 9% inflation, there is a positive correlation between inflation and investment--the Mundell-Tobin effect may be a valid explanation. I further this analysis to show that treating investment as an exogenous variable may be problematic in empirical growth models. / Ph. D.

This dissertation examines three aspects of banking behavior: (a) involvement of banks in inflationary processes, (b) the effects of inflation on bank earnings and (c) the portfolio behavior of banks in an inflationary period. The study first traces the evolution of the"credit theory of inflation" from the eighteenth century to the early twentieth, and finds that under certain conditions banks may ignite an inflationary process by failing to adjust their loan rates to the real rate of interest. The analysis of the second aspect of banking behavior is carried out at the micro-economic level. After a critical appraisal of Martin Bailey's macro model of banking behavior under conditions of fully anticipated inflation and a competitive market structure, the study finds that Bailey's conclusion as to the favorable effects of inflation on bank profit is inconsistent with his model. The study revises Bailey's model and develops two models of banking behavior along the lines of the neoclassical approach of manufacturing firms. The first model examines banking performance under conditions of a competitive market structure and fully anticipated inflation. The model predicts that under these circumstances the banking system is more likely to lose than gain from inflation. The second model analyzes banking behavior when the banking market is characterized as monopolistic. It is inferred that no definite conclusions may be drawn with regard to the effects of inflation on bank earnings without an empirical knowledge of the parameters of the demand for loans and the supply of funds to the banking system. The study also analyzes banking behavior under conditions of unanticipated inflation. It is found that if savers respond to changes in the rates of interest only after a time lag, or if their subjective probability distribution of expected returns on income earning assets is biased downward, banks are in a position to earn some windfall gains from inflation. The third section of the dissertation analyzes bank portfolio behavior under both anticipated and unanticipated inflation. It is shown that unanticipated inflation forces the banks to alter their portfolio of income earning assets, and it is argued that such activities by banks may nullify the restrictive monetary policies that the monetary authority may impose upon the money market to slow down the rate of inflation. The study also presents evidence on the profitability of Chilean commercial banks during 1937 to 1950, and finds that due to the special rediscounting provisions of the Chilean Central Bank these banks earned more than average rates of return on their capital outlay, The study also suggests that the Chilean commercial banks were instrumental in perpetuating the inflation. Evidence is also presented on the portfolio behavior of U.S. commercial banks for the period 1950 to 1970. It is shown that the U.S. commercial banks moved from long-term assets to short-term assets during all the expansion periods observed between 1950 to 1970. This behavior by U.S. commercial banks is explained by the differential impact of the unanticipated inflation on short-term and long-term rates of interest for the period under review. / Doctor of Philosophy