A volatile real exchange rate and high unemployment rate is a growing concern in South Africa, therefore the right macroeconomic policy is required. The challenge is to find stability in the real exchange rate paired with a low inflation rate, both of which are necessary to promote long term economic growth, which in turn creates more job opportunities. This study analyses the impact of the exchange rate on unemployment in South Africa by considering quarterly data for the period 2003 to 2013. In this study, the macroeconomic transmission channel is divided into two transmission paths, imports and exports. These find their roots in the Phillips curve and the Keynesian theory on unemployment respectively. The vector error correction model (VECM), together with an analysis of the impulse response functions and variance decompositions, are implemented to determine the short and long run impacts of the exchange rate on unemployment. After the completion of a variety of specifications, estimations and tests, both macroeconomic transmission paths revealed in the empirical analysis that the real exchange rate has a significant impact on unemployment. In the imports transmission path, the real exchange rate, imports and the CPI have significant long term relationships with unemployment. Furthermore, the exports transmission path found significant short term relations with unemployment in considering the real exchange rate, exports and economic growth. The impulse responses in both transmission paths indicated that a shock in the exchange rate will have a significant effect on unemployment in the short run. Similar results were found with the variance decomposition. In the import transmission path, movements in the real exchange rate explained an increasing portion of the variance in unemployment. Alternatively, in the export transmission path the real exchange rate and exports explained an increasing portion of the variance. The evidence therefore suggests that South Africa should focus more on stabilising the exchange rate, since fluctuations in unemployment are a result of shocks in the real exchange rate, following the macroeconomic transmission channels discussed. / MCom (Economics)--North-West University, Vaal Triangle Campus, 2015

Thesis (PhD (Business Management))--University of Stellenbosch, 1992. / ENGLISH ABSTRACT: In this dissertation the association between inflation-adjusted data and the behaviour of share prices is investigated. The primary purpose of this investigation is to make a contribution to the body of knowledge regarding share price behaviour, and more specifically with respect to the relationship between inflation accounting and the share market. The disclosure of inflation-adjusted data is not mandatory in South Africa, and few companies have disclosed supplementary current cost income statements. A somewhat larger number of companies make provision for inflation in their financial results by revaluing their assets and accounting for additional depreciation. Prior to 1984 a fair proportion of the companies listed on the Johannesburg Stock Exchange also used the LIFO method of inventory valuation. The disclosed inflation-adjusted data is very limited, necessitating the estimation of the inflation-adjusted data. To estimate the inflation adjustments, a number of inflation accounting models were developed based either on AC 201 or other suggestions found in the literature. These models were then applied to the financial results of listed industrial companies. In the first empirical analysis contained in this dissertation the inflation adjustments generated by the various models were compared to identify unique models for further use in the market related empirical work. From this analysis it was established that AC 201 is open to such a divergent interpretation that significantly different inflation adjustments are generated. From the literature reviewed, three research designs showed promise for application to the market related empirical analyses. The first design used was the event study which was used to evaluate the share market's reaction to the abolition of the tax benefits associated with the LIFO method of inventory valuation. The share market showed no significant reaction for a period of 21 weeks surrounding the announcement, making possible statements regarding the relative efficiency of the Johannesburg Stock Exchange impossible. It was, however, established that the research design used is very sensitive to sample formation, and it is recommended that special care should be used in market related studies to ensure that both operating and holding companies are not included in the same sample. The second research design used was the incremental information content design. Limited incremental information content was found in the inflation-adjusted income for companies which disclosed no inflation adjustments. For companies that did disclose some aspects of inflation accounting, the inflation-adjusted income was often the better explanatory variable of the residual share returns, but no incremental information content could be detected. Based on analyses performed on single years of data it was found that the inflation-adjusted income was as good an explanatory variable of the residual share returns as the historic cost variable. The final research design used was the income measurement perspective. It was found that in general the historic cost income behaved as expected, but the inflation adjustment to income seldom displayed any income measuring properties. The only inflation accounting model that displayed signs of income measurement properties contained as part of its adjustment unrealised holding gains on fixed assets. This could be a indication that the disclosure of unrealised holding gains could be useful. The lack of results found for AC 201 possibly points to its inadequacy. In general the relationship between the inflation-adjusted data and the share market was found to be very weak. / AFRIKAANSE OPSOMMING: In hierdie proefskrif word die verwantskap tussen inflasie-aangepaste data en die gedrag van aandeelpryse ondersoek. Die primere doel met hierdie studie is om by te dra tot die kennis oor die gedrag van aandeelpryse, en dan meer spesifiek met betrekking tot die verwantskap tussen inflasie-rekeningkunde en die aandelemark. In Suid-Afrika is dit nie verpligtend om inflasie-aangepaste data bekend te maak nie, en min maatskappye publiseer 'n aanvullende inkomstestaat van huidige koste. 'n Ietwat groter aantal maatskappye maak voorsiening vir inflasie in hul finansiele resultate deur hul bates te herwaardeer en addisionele waardevermindering af te skryf. Voor 1984 het 'n aantal maatskappye wat op die Johannesburgse Effektebeurs genoteer is, ook voorraad volgens die LIEU metode gewaardeer. Slegs beperkte inflasie-aangepaste data is dus beskikbaar, wat die skatting van sodanige data noodsaak. Om die inflasie-aangepaste data te kan skat, is 'n aantal inflasie-rekeningkunde modelle ontwikkel, op grond van of RE 201 of ander voorstelle in die literatuur. Hierdie modelle is daarna toegepas op die finansiele resultate van genoteerde nywerheidsmaatskappye. In die eerste empiriese ondersoek wat in hierdie proefskrif vervat is, is die inflasieaanpassings wat deur die onderskeie modelle gegenereer is, met mekaar vergelyk om te bepaal watter uniek is vir gebruik in die markverwante empiriese ondersoek wat volg. Met hierdie ondersoek is vasgestel dat RE 201 so uiteenlopend vertolk kan word dat inflasie-aanpassings wat statisties beduidend van mekaar verskil, gegenereer word. Uit die literatuur wat bestudeer is, blyk dit dat drie verskillende navorsingsontwerpe geskik vir toepassing in die markverwante ondersoeke is. Die eerste ontwerp wat gebruik is, is die gebeurtenisstudie waarmee die effektebeurs se reaksie bepaal is op die afskaffing van die belastingvoordeel wat aan die LIEU-voorraadwaardasie gekoppel was. Die effektebeurs het gedurende die 21 weke rondom hierdie aankondiging geen betekenisvolle reaksie getoon nie. Dit maak enige afleidings oor die relatiewe doeltreffendheid van die effektebeurs onmoontlik. Daar is wel vasgestel dat die navorsingsontwerp baie sensitief vir die samestelling van die steekproef is. Dit word aanbeveel dat sorg gedra behoort te word dat 'n bedryfsmaatskappy nie saam met sy houermaatskappy in dieselfde steekproef opgeneem word nie. Die tweede navorsingsontwerp wat gebruik is, berus op die inkrementele inligtingsinhoud. Die inflasie-aangepaste inkomstesyfers van maatskappye wat geen aanpassings vir inflasie toon nie, bevat beperkte inkrementele inligting. Vir maatskappye wat wel inflasieaanpassings openbaar maak, is die inflasie-aangepaste inkomstesyfer dikwels die beste beskrywende veranderlike van die residuele aandeelopbrengste, maar geen inkrementele inligting kon gevind word nie. Uit ontledings wat op 'n jaarbasis uitgevoer is, kan daar afgelei word dat die inflasie-aangepaste inkomstesyfer net so 'n goeie beskrywende veranderlike van die residuele aandeelopbrengste as die historiesekoste-inkomstesyfer is. Die laaste navorsingsontwerp wat gebruik is, berus op die inkomstemetingsperspektief. In die algemeen is daar gevind dat die historiesekoste-inkomstesyfer volgens verwagting reageer, maar dat die inflasie-aanpassing selde enige inkomstemetingseienskappe bevat. Die enigste inflasie-rekeningkunde model wat tekens van inkomstemetingseienskappe toon, bevat ongerealiseerde houwinste op vaste bates as deel van sy regstelling. Dit kan beskou word as 'n teken dat die openbaarmaking van ongerealiseerde houwinste nuttig kan wees. Die gebrek aan betekenisvolle resultate vir RE 201 hou die moontlikheid in dat dit ontoereikend is. In die algemeen is gevind dat die verwantskap tussen inflasie-aangepaste data en die gedrag van aandele op die effektebeurs baie swak is.

Thesis (MBA)--Stellenbosch University, 2002. / ENGLISH ABSTRACT: Inflation has many negative effects and for this reason the South African Reserve Bank, like central banks in most countries, is strongly opposed to inflation and uses its monetary policy to combat it. This action is necessary for continued economic growth, prosperity and a fair distribution of income and wealth. Low inflation and a stable financial environment are important prerequisites for the achievement of these objectives on a long-term basis. In order to combat inflation in South Africa it was announced in the Budget Speech on the 23 February 2000, that a policy of inflation targeting would be implemented in South Africa. The objective is to bring inflation within the target band of three to six percent by the year 2002. Inflation targeting has been successful in helping New Zealand, Canada, Israel, the United Kingdom, Sweden, Australia and Spain achieve and maintain low rates of inflation. This does not mean, however, that inflation targeting has been implemented without incurring costs in lost output and employment, but there is no evidence that the adoption of inflation targets has produced harmful effects to the real economy over the long-term. Instead, the low inflation rates achieved in the inflation targeting countries have improved the prospects for sustainable longterm growth. However, inflation targeting is not appropriate for all countries. There are certain developing countries that do not meet the basic requirements for adopting inflation targeting. In this study the viability of implementing inflation targeting as a policy solution to combat inflation in South Africa is examined. In order to determine this, focus is placed on the key characteristics and features of inflation targeting. The reasons why countries have implemented inflation targeting are viewed and the prerequisites that must be met before inflation targeting can be implemented are discussed. The advantages and disadvantages of this approach are also highlighted. Furthermore, focus is placed on how inflation targeting has been implemented in some of the advanced economies in order to determine whether it can be successfully implemented in developing countries, and if so, in which developing countries. Finally equipped with an .understanding of the theoretical aspects of inflation targeting and drawing from the lessons of the international experiences, focus is placed on how viable it is to implement inflation targeting in South Africa. / AFRIKAANSE OPSOMMING: Wêreldwyd neem Sentrale Banke van ontwikkelende lande, aktiewe stappe in die bekamping van inflasie. Die Suid Afrikaanse Reserwe Bank, net soos ander Sentrale Banke is ook gekant teen inflasie en maak gebruik van hulle monetêre beleid vir die bekamping van inflasie. Bekamping van inflasie is van kardinale belang om voortgesette ekonomiese groei, welvaart en 'n regverdige verspreiding van inkomste en rykdom te verseker. Lae inflasie en 'n stabiele finansiële omgewing is belangrike voorvereistes om hierdie finansiële doelwitte in die langtermyn te bereik. Ten einde inflasie in Suid Afrika te bekamp, het die Minister van Finansies in sy begrotingsrede van 23 Februarie 2000, aangekondig dat Suid Afrika 'n beleid van inflasie bekamping gaan implementeer. Die doelwit van so beleid sou wees om inflasie binne 'n drie tot ses persent teikenband te beperk teen die jaar 2002. Inflasie bekamping was suksesvol in die bekamping van inflasie in lande soos New Zealand, Kanada, Israel, Die Verenigde Koningkryk, Swede, Australia en Spanje, waar lae inflasie koerse behaal is en gehandhaaf word. Alhoewel 'n beleid van inflasie bekamping met indirekte koste en 'n verlies in produksie en werksgeleenthede gepaard gaan, is daar geen bewyse dat die implementering van inflasie teikens 'n wesenlike effek op die ekonomie in die langtermyn het nie. Inteendeel, lae inflasie in die teikengroep lande het verseker dat voortdurende ekonomiese groei oor die langtermyn gehandhaaf kon word. 'n Beleid van inflasie bekamping is nie wenslik vir alle lande nie. Daar is verskeie ontwikkelende lande wat nie aan die basiese voorvereistes vir die implementering van 'n beleid van inflasie bekamping voldoen nie. In hierdie studie word die wenslikheid, al dan nie vir die implementering van 'n beleid van inflasie bekamping, as 'n beleidsoplossing in die bekamping van inflasie in Suid Afrika ondersoek. Ten einde dit te bereik word die fokus op die hoof karaktertrekke en einskappe van inflasie bekamping geplaas. Die redes waarom lande inflasie bekamping implementeer, asook die voorvereistes waaraan voldoen moet word, alvorens 'n beleid van inflasie bekamping geimplementeer kan word, word bespreek. Die voor- en nadele van hierdie werkswyse word ook uitgelig. Voorts word gefokus op die implementering van inflasie bekamping in ontwikkelde ekonomieë, om te bepaal of dit op die ekonomieë van ontwikkelende lande toegepas kan word, en indien wel, watter ontwikkelende lande? Toegerus met 'n begrip van die teoretiese aspekte van inflasie bekamping, gepaardgaande met die internasionale ervarings, word daar gefokus op die wenslikheid, vir die implementering van 'n beleid van inflasie bekamping in Suid Afrika.

Thesis (MDF)--Stellenbosch University, 2015. / ENGLISH ABSTRACT: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” – Ronald Reagan It is widely publicised that inflation-linked instruments provide a hedge against rising inflation. This has led investors to assume that high inflation creates an opportunity to beat the market when investing in this asset class. This assumption is based on the belief that higher inflation creates higher returns. It is due to this belief that a research question was formulated to determine if inflation is in fact a determinant of inflation-linked bond returns. This research study investigated, as a first objective, the relationship between the South African prime lending interest rate and the South African consumer price index inflation between 2000 and 2013. The Augmented Dickey-Fuller test was applied to test for unit roots between interest and inflation. This test was extended to six other emerging countries that, together with South Africa, are issuers of government inflation-linked bonds. The researcher’s intention was to compare the relationship between interest rates and inflation in South Africa with that of the six other countries. Surprisingly, the results indicated that South African inflation and interest are non-stationary. After testing for cointegration, it was concluded that there is no relationship between the prime lending interest rate and inflation in the data set and most of the variation can be explained by means of the autocorrelation of residuals in previous periods more than the prime lending rate. As a second objective, the same methodology was applied to determine whether there is any relationship between the South African consumer price index inflation and the South African government inflation-linked bond returns. The results indicated that the series is not cointegrated which means that no relationship exists between inflation and inflation-linked bond returns. The third objective looked at alternative factors that could explain what the real determinants of inflation-linked bond returns are. It was concluded that the trend in inflation is really the source of inflation-linked bond performance, with the effects of the lead and lag periods causing capital losses and profits.

本文主要是透過 Google trends 網站提供的關鍵字搜尋量資料， 探討網路資料是否能夠提供通貨膨脹率的即時資訊。 透過美國消費者物價指數的組成細項作為依據，蒐集美國2004年1月至2015年12月的 Google trends 關鍵字變數，並藉由最小絕對壓縮挑選機制(Least absolute shrinkage and selection operator)、 彈性網絡(Elastic Net)以及主成分分析法(Principal component analysis)等等變數挑選機制，有效地整合大量的關鍵字資料。實證結果發現，透過適當變數挑選後的 Google trends 關鍵字變數確實可改善美國通貨膨脹率的即時預測表現，並為美國通貨膨脹率提供額外有效的資訊。此外，我們透過台灣的關鍵字資料檢驗，也確認Google trends 關鍵字資料可以幫助台灣通貨膨脹率的即時預測。

It is shown in three examples that future cosmological data may allow us to constrain fundamental physics in interesting ways. The first example illustrates that correlations in the polarization of the cosmic microwave background may allow us to put the strongest limit yet on the mass of a particle, the graviton, at a level of m . 10−30 eV. In the second example, it is shown that observations of the correlations of temperature anisotropies and polarization of the cosmic microwave background may reveal hints for the realization of a class of string theoretic inflationary models that go by the name of axion monodromy inflation, or, rule them out. If the evidence for inflation strengthens substantially, just the requirement that inflation occurred may be used to constrain models of fundamental physics. The third example shows that a class of string compactifications that are commonly used in the context of string phenomenology cannot support inflation and might thus be ruled out by cosmology. For completeness, a review of the physics underlying the cosmic microwave background radiation is included and some analytical results for the signatures of primordial gravitational waves in the cosmic microwave background are given. / text

This thesis addresses three relevant macroeconomic issues: (i) why Central Banks behave so cautiously compared to optimal theoretical benchmarks, (ii) do monetary variables add information about future Euro Area inflation to a large amount of non monetary variables and (iii) why national saving and investment are so correlated in OECD countries in spite of the high degree of integration of international financial markets. The process of innovation in the elaboration of economic theory and statistical analysis of the data witnessed in the last thirty years has greatly enriched the toolbox available to macroeconomists. Two aspects of such a process are particularly noteworthy for addressing the issues in this thesis: the development of macroeconomic dynamic stochastic general equilibrium models (see Woodford, 1999b for an historical perspective) and of techniques that enable to handle large data sets in a parsimonious and flexible manner (see Reichlin, 2002 for an historical perspective). Dynamic stochastic general equilibrium models (DSGE) provide the appropriate tools to evaluate the macroeconomic consequences of policy changes. These models, by exploiting modern intertemporal general equilibrium theory, aggregate the optimal responses of individual as consumers and firms in order to identify the aggregate shocks and their propagation mechanisms by the restrictions imposed by optimizing individual behavior. Such a modelling strategy, uncovering economic relationships invariant to a change in policy regimes, provides a framework to analyze the effects of economic policy that is robust to the Lucas'critique (see Lucas, 1976). The early attempts of explaining business cycles by starting from microeconomic behavior suggested that economic policy should play no role since business cycles reflected the efficient response of economic agents to exogenous sources of fluctuations (see the seminal paper by Kydland and Prescott, 1982} and, more recently, King and Rebelo, 1999). This view was challenged by several empirical studies showing that the adjustment mechanisms of variables at the heart of macroeconomic propagation mechanisms like prices and wages are not well represented by efficient responses of individual agents in frictionless economies (see, for example, Kashyap, 1999; Cecchetti, 1986; Bils and Klenow, 2004 and Dhyne et al., 2004). Hence, macroeconomic models currently incorporate some sources of nominal and real rigidities in the DSGE framework and allow the study of the optimal policy reactions to inefficient fluctuations stemming from frictions in macroeconomic propagation mechanisms. Against this background, the first chapter of this thesis sets up a DSGE model in order to analyze optimal monetary policy in an economy with sectorial heterogeneity in the frequency of price adjustments. Price setters are divided in two groups: those subject to Calvo type nominal rigidities and those able to change their prices at each period. Sectorial heterogeneity in price setting behavior is a relevant feature in real economies (see, for example, Bils and Klenow, 2004 for the US and Dhyne, 2004 for the Euro Area). Hence, neglecting it would lead to an understatement of the heterogeneity in the transmission mechanisms of economy wide shocks. In this framework, Aoki (2001) shows that a Central Bank maximizing social welfare should stabilize only inflation in the sector where prices are sticky (hereafter, core inflation). Since complete stabilization is the only true objective of the policymaker in Aoki (2001) and, hence, is not only desirable but also implementable, the equilibrium real interest rate in the economy is equal to the natural interest rate irrespective of the degree of heterogeneity that is assumed. This would lead to conclude that stabilizing core inflation rather than overall inflation does not imply any observable difference in the aggressiveness of the policy behavior. While maintaining the assumption of sectorial heterogeneity in the frequency of price adjustments, this chapter adds non negligible transaction frictions to the model economy in Aoki (2001). As a consequence, the social welfare maximizing monetary policymaker faces a trade-off among the stabilization of core inflation, economy wide output gap and the nominal interest rate. This feature reflects the trade-offs between conflicting objectives faced by actual policymakers. The chapter shows that the existence of this trade-off makes the aggressiveness of the monetary policy reaction dependent on the degree of sectorial heterogeneity in the economy. In particular, in presence of sectorial heterogeneity in price adjustments, Central Banks are much more likely to behave less aggressively than in an economy where all firms face nominal rigidities. Hence, the chapter concludes that the excessive caution in the conduct of monetary policy shown by actual Central Banks (see, for example, Rudebusch and Svennsson, 1999 and Sack, 2000) might not represent a sub-optimal behavior but, on the contrary, might be the optimal monetary policy response in presence of a relevant sectorial dispersion in the frequency of price adjustments. DSGE models are proving useful also in empirical applications and recently efforts have been made to incorporate large amounts of information in their framework (see Boivin and Giannoni, 2006). However, the typical DSGE model still relies on a handful of variables. Partly, this reflects the fact that, increasing the number of variables, the specification of a plausible set of theoretical restrictions identifying aggregate shocks and their propagation mechanisms becomes cumbersome. On the other hand, several questions in macroeconomics require the study of a large amount of variables. Among others, two examples related to the second and third chapter of this thesis can help to understand why. First, policymakers analyze a large quantity of information to assess the current and future stance of their economies and, because of model uncertainty, do not rely on a single modelling framework. Consequently, macroeconomic policy can be better understood if the econometrician relies on large set of variables without imposing too much a priori structure on the relationships governing their evolution (see, for example, Giannone et al., 2004 and Bernanke et al., 2005). Moreover, the process of integration of good and financial markets implies that the source of aggregate shocks is increasingly global requiring, in turn, the study of their propagation through cross country links (see, among others, Forni and Reichlin, 2001 and Kose et al., 2003). A priori, country specific behavior cannot be ruled out and many of the homogeneity assumptions that are typically embodied in open macroeconomic models for keeping them tractable are rejected by the data. Summing up, in order to deal with such issues, we need modelling frameworks able to treat a large amount of variables in a flexible manner, i.e. without pre-committing on too many a-priori restrictions more likely to be rejected by the data. The large extent of comovement among wide cross sections of economic variables suggests the existence of few common sources of fluctuations (Forni et al., 2000 and Stock and Watson, 2002) around which individual variables may display specific features: a shock to the world price of oil, for example, hits oil exporters and importers with different sign and intensity or global technological advances can affect some countries before others (Giannone and Reichlin, 2004). Factor models mainly rely on the identification assumption that the dynamics of each variable can be decomposed into two orthogonal components - common and idiosyncratic - and provide a parsimonious tool allowing the analysis of the aggregate shocks and their propagation mechanisms in a large cross section of variables. In fact, while the idiosyncratic components are poorly cross-sectionally correlated, driven by shocks specific of a variable or a group of variables or measurement error, the common components capture the bulk of cross-sectional correlation, and are driven by few shocks that affect, through variable specific factor loadings, all items in a panel of economic time series. Focusing on the latter components allows useful insights on the identity and propagation mechanisms of aggregate shocks underlying a large amount of variables. The second and third chapter of this thesis exploit this idea. The second chapter deals with the issue whether monetary variables help to forecast inflation in the Euro Area harmonized index of consumer prices (HICP). Policymakers form their views on the economic outlook by drawing on large amounts of potentially relevant information. Indeed, the monetary policy strategy of the European Central Bank acknowledges that many variables and models can be informative about future Euro Area inflation. A peculiarity of such strategy is that it assigns to monetary information the role of providing insights for the medium - long term evolution of prices while a wide range of alternative non monetary variables and models are employed in order to form a view on the short term and to cross-check the inference based on monetary information. However, both the academic literature and the practice of the leading Central Banks other than the ECB do not assign such a special role to monetary variables (see Gali et al., 2004 and references therein). Hence, the debate whether money really provides relevant information for the inflation outlook in the Euro Area is still open. Specifically, this chapter addresses the issue whether money provides useful information about future inflation beyond what contained in a large amount of non monetary variables. It shows that a few aggregates of the data explain a large amount of the fluctuations in a large cross section of Euro Area variables. This allows to postulate a factor structure for the large panel of variables at hand and to aggregate it in few synthetic indexes that still retain the salient features of the large cross section. The database is split in two big blocks of variables: non monetary (baseline) and monetary variables. Results show that baseline variables provide a satisfactory predictive performance improving on the best univariate benchmarks in the period 1997 - 2005 at all horizons between 6 and 36 months. Remarkably, monetary variables provide a sensible improvement on the performance of baseline variables at horizons above two years. However, the analysis of the evolution of the forecast errors reveals that most of the gains obtained relative to univariate benchmarks of non forecastability with baseline and monetary variables are realized in the first part of the prediction sample up to the end of 2002, which casts doubts on the current forecastability of inflation in the Euro Area. The third chapter is based on a joint work with Domenico Giannone and gives empirical foundation to the general equilibrium explanation of the Feldstein - Horioka puzzle. Feldstein and Horioka (1980) found that domestic saving and investment in OECD countries strongly comove, contrary to the idea that high capital mobility should allow countries to seek the highest returns in global financial markets and, hence, imply a correlation among national saving and investment closer to zero than one. Moreover, capital mobility has strongly increased since the publication of Feldstein - Horioka's seminal paper while the association between saving and investment does not seem to comparably decrease. Through general equilibrium mechanisms, the presence of global shocks might rationalize the correlation between saving and investment. In fact, global shocks, affecting all countries, tend to create imbalance on global capital markets causing offsetting movements in the global interest rate and can generate the observed correlation across national saving and investment rates. However, previous empirical studies (see Ventura, 2003) that have controlled for the effects of global shocks in the context of saving-investment regressions failed to give empirical foundation to this explanation. We show that previous studies have neglected the fact that global shocks may propagate heterogeneously across countries, failing to properly isolate components of saving and investment that are affected by non pervasive shocks. We propose a novel factor augmented panel regression methodology that allows to isolate idiosyncratic sources of fluctuations under the assumption of heterogenous transmission mechanisms of global shocks. Remarkably, by applying our methodology, the association between domestic saving and investment decreases considerably over time, consistently with the observed increase in international capital mobility. In particular, in the last 25 years the correlation between saving and investment disappears.

This study investigates the effects of an anticipated inflation targeting in a small open economy based on the framework of Mansoorian and Mohsin (2006) with cash-in-advance constraints. It is shown that the steady-state effects of a permanent increase in the inflation rate on capital accumulation, labor and current account are consistent with the results in Mansoorian and Mohsin (2006). However, there is an ambiguous change in consumption depending on the relationship between consumption and labor in the utility function. If consumption and labor is with a large degree of substitution, consumption may rise. Moreover, there is an impact decrease in the shadow price of investment when the policy of targeting a higher inflation rate announces, and the degree of such decrease is inversely related to the time length between the announcement and the realization of policy. Prior to the execution of the policy, the capital stock decumulates and the current account may go through a deficit or surplus first and then deficit along the unstable trajectories depending on the relative impact between the change in the shadow price of investment and the shadow price of assets on the locus where the current account maintains in equilibrium. After the implementation of a higher inflation targeting policy, the capital stock continues to decumulate and the current account accumulates along the stable paths toward the new equilibrium. In addition, the relationship between consumption and labor also influences the dynamic movements of the shadow price of investment.

本文旨在研究中國物價膨脹對其經濟成長的非線性效果，一個重要卻未有定論的議題。我們採用自 1986 年至 2006 年中國各省官方公佈的國內生產總值、消費者物價指數、與其它解釋變數的數據，透過追蹤資料進行迴歸分析。本文主要發現為中國物價膨脹門檻的估計結果十分顯著且深具頑強性。當物價膨脹率超過 2.5% 此一門檻值，物價膨脹率每超出 1% 將減低經濟成長率 0.61%；而物價膨脹率低於該門檻值時，物價膨脹率每增加 1% 將刺激經濟成長率 0.53%。是故，我們建議中國政府應維持溫和的物價膨脹以利於長期經濟成長。 / This paper investigates a crucial but still open issue about the nonlinear effect of inflation on economic growth in China. We adopt official provincial data set of gross provincial product, consumer price index, as well as other explanatory variables from 1986 to 2006, and regression of panel data is used for analysis. The main finding is that the inflation threshold effect is highly significant and robust in China. Above the 2.5% inflation threshold, every increase of inflation rate by 1% impedes economic growth by 0.61%; below the threshold, such degree of increase stimulates the growth by 0.53%. We suggest China shall keep inflation rate moderate for long-run growth.

本文旨在探討當央行的目標函數中對通膨和產出的權重有相關時，並且將央行的偏好納入模型之中，對央行其目標通膨機制下之通膨偏誤(inflationary bias)有何影響，最後再比較在不同的目標通膨機制下之通膨偏誤以及預期社會福利。相較於Walsh (1999)的結果，我們得到部份相同、部分不同的結論。以下為三點相異之發現：（1）當央行愈在乎通膨，對通膨有較高的權重，不論在何種目標通膨機制下，其通膨偏誤皆會變小。（2）相較於沒有考慮央行偏好下的政策結果，我們發現考慮央行的偏好後，對通膨偏誤和預期社會福利會有很大的影響。影響的結果則是決定於央行偏好的大小。（3）相較於權衡性政策(discretionary policy)下的通膨偏誤，在非任意政策和宣示政策的模型中加入央行的偏好後，未必有助於降低的通膨偏誤。同樣地，政策比較的結果也是決定於央行偏好的大小。 / In this paper, we extend the model of inflation targeting with a penalty borne by the central bank in Walsh (1999) and add the specification of the central bank’s preference in Muscatelli (1998) to study how the weight on inflation, the central bank’s preference affect the inflationary bias under a non-state-contingent policy and an announcement policy. Moreover, we investigate how the expected social welfare varies under a discretionary policy, a non-state-contingent policy, and an announcement policy. We obtain the following findings in contrast with those in Walsh (1999): First, for a non-state-contingent policy and an announcement policy, when the central bank more cares about inflation, the inflationary bias becomes smaller. Second, compared with the inflationary bias under a non-state-contingent policy and an announcement policy without the central bank’s preference, it has a substantial effect on the inflationary bias and the expected social welfare after considering the preference of the central bank into the models. The monetary policy effect depends on the magnitude of the central bank’s preference. Third, adding the preference of the central bank is not definitely beneficial to reduce the inflationary bias and enhance the expected social welfare compared with under a discretionary policy. Similarly, the outcome is dependent on the degree of the central bank’s preference.